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THE 


ELEMENTS 


OF 


POLITICAL  ECONOMY, 


BY 

FRANCIS    WAYLAND,    D.D., 

LATE  PRESIDENT   OP  BROWN   UNIVERSITY. 


RECAST    BY 

AAKON    L.   CHAPIN,   D.D., 


PRESIDENT    OP    BELOIT    COLLEGE 


NEW    YORK: 
SHELDON    &    COMPANY, 

S   MURRAY   STREET. 
1879. 


iltl 


/ 
iv 


DR.  FRANCIS  WAYLAND'S  TEXT-BOOKS. 


MORAL  SCIENCE,  1  vol.  12mo.    Revised  just  before  the  author' » 

death. 
MORAL,    SCIENCE,  1  vol.  18mo.      Abridged    by    the    author   and 

adapted  to  schools  and  academies. 
INTELLECTUAL    PHILOSOPHY,      1    vol.    12mo.      Revised  just 

before  the  author's  death. 
POLITICAL    ECONOMY,  1  vol.  12mo.     Revised  by  A.  L.   Chapin, 

in  1S78. 
POLITICAL    ECONOMY,    18mo.      Abridged    by    the    author   and 

adapted  to  schools  and  academies. 

As  an  educator,  no  man  in  this  country  ever  stood  higher  than  Dr.  Way- 
land.  These  books  were  built  up  from  his  work  in  the  class-room,  and  are, 
therefore,  adapted  to  meet  the  wants  of  both  teacher  and  scholar.  They  are 
now  used  in  most  of  the  leading  schools  and  colleges  in  the  country. 


COFTBIGHT,   1878,  BY  SHELDON  &  COMPANY. 


PREFACE. 


.  WAYLAKD'S  work  on  Political  Economy  was 
the  first  attempt  in  our  country  to  present  the 
principles  of  that  science  in  the  form  of  a  text-book  of 
instruction.  His  aim  was  to  put  into  simple  statement 
under  a  natural  and  methodical  arrangement,  the  doc- 
trines of  Adam  Smith,  Say  and  Ricardo,  who  were  in 
his  day,  as  they  still  continue  to  be,  leading  authorities 
on  the  subject.  To  the  public  generally  the  whole  sub- 
ject was  new.  Dr.  Wayland  therefore  used  abundant 
illustration  and  frequent  repetition  in  this  introduction 
of  the  science  to  youth  and  practical  business  men.  His 
effort  was  attended  with  remarkable  success,  and  no 
other  text-book  on  the  subject  has  gained  such  general 
acceptance  and  been  so  extensively  and  continuously 
used. 

But  the  forty  years  that  have  elapsed  since  Dr.  "Way- 
land  finished  his  work,  have  been  years  of  wonderful 
activity  and  enterprise  in  all  departments  of  productive 
industry  and  trade.  Many  practical  problems  of  Politi- 
cal Economvhave  thus  come  to  be  studied  in  a  new  li<jht 

•/  O 

and  have  elicited  discussions  earnest  and  profound  from 


11  PREFACE. 

philosophers,  statesmen,  and  practical  manufacturers  and 
merchants.  The  science  itself  has  made  progress,  and  its 
elementary  principles  have  become  more  or  less  familiar 
and  are  readily  apprehended  by  all.  Special  treatises  on 
Capital,  Labor  and  Wages,  Money  and  Currency,  Taxa- 
tion, Free  Trade,  etc.,  have  thrown  much  light  on  the 
complicated  problems  which  concern  the  development 
and  distribution  of  wealth.  While  these  things  have 
caused  little  change  in  the  real  elements  of  the  science  as 
presented  by  our  author,  they  demand  that  as  a  text-book 
of  instruction  adapted  to  our  times,  his  work  should  be 
very  considerably  modified. 

Some  months  ago,  the  present  publishers  of  Dr. 
Wayland's  book  requested  the  writer  to  make  a  revision 
of  that  work.  Fully*  believing  that  the  doctrines  and 
the  general  aim  and  methods  of  that  eminent  instructor 
on  this  subject  were  sound  and  wise,  and  that  the  press- 
ing want  of  the  class-room  in  our  institutions  of  higher 
education,  was  not  fully  met  by  any  one  of  the  excellent 
treatises  before  the  public,  he  consented  and  assumed  the 
undertaking.  It  was  soon  found,  however,  that  a  mere 
revision  of  the  book  would  not  accomplish  the  desired 
object.  Comparatively  few  pages  of  the  original  work 
could  be  used  as  they  stood.  In  the  result,  while  scarcely 
any  change  has  been  made  in  the  opinions  presented,  the 
arrangement  and  the  forms  of  statement  have  been  quite 
generally  recast  with  considerable  condensation  and  many 
needed  additions. 


PRKFACE.  Ill 


In  the  prosecution  of  his  work,  the  writer  has  had 
chiefly  in  mind  the  wants  of  the  class-room  as  suggested 
by  an  experience  of  many  years  in  the  instruction  of 
successive  classes  in  college.  His  aim  has  been  to  give 
in  full  and  proportioned,  yet  clear  and  compact  statement 
the  elements  of  this  important  branch  of  science,  in  their 
latest  aspects  and  applications.  In  thus  recasting  the 
treatise,  he  has  followed  his  habit  before  his  own  classes, 
and  drawn  freely  from  various  writers,  sometimes  in 
formal  quotations,  but  oftener  by  catching  apt  thoughts 
and  happy  expressions  as  they  might  serve  his  purpose. 
The  writings  of  McCulloch,  Mill,  Fawcett,  Thornton, 
Jevons,  and  Brassey,  of  England,  and  those  of  Bowen, 
Perry,  Carey,  Thompson,  A.  Walker,  F.  A.  Walker, 
Sumner,  and  D.  A.  Wells,  of  our  own  country,  have 
been  thus  freely  referred  to  and  drawn  upon. 

The  work  in  its  present  form  is  offered  to  the  public, 
not  as  an  original  contribution  to  the  science  treated  of, 
but  as  a  compilation  of  well  defined  principles  of  the 
science,  which,  in  the  writer's  view,  are  to  be  accepted 
as  sound  and  true.  On  some  disputed  topics,  positive 
opinions  are  expressed,  with  due  respect  for  the  sincerity 
of  those  who  may  think  differently,  but  in  the  strong 
conviction  that  they  will  stand  the  test  both  of  philosophy 
and  of  practical  experience. 

A.  L.  C. 

BBLOIT  COLLKGK,  March  1, 1878. 


CONTENTS. 


CHAPTER    I. 
Preliminary  Observations. 

FAQH 

Origin  and  Definition  of  Political  Economy 3 

Fundamental  Laws 4 

1.  Men's  Desires  and  Nature's  Resources.  2.  Labor  neces- 
sary. 3.  Labor  establishes  the  Right  of  Property.  4.  The 
Right  of  Property  brings  the  Possibility  of  Exchange. 

Materials  of  the  Science 6 

Motive  to  effort, — Conflicting  desires 7 

CHAPTER  II. 
Definitions  and  Divisions. 

Wealth, — Errors  respecting  it 8 

1.  Not  identical  with  Money.  2.  Does  not  include  human 
beings  and  capacities.  3.  Evidences  of  debt  no  part  of 
general  wealth.  4.  Includes  some  things  not  tangible 
and  durable. 

Sources  of  Wealth — Original — Secondary 10 

How  Wealth  is  increased 11 

Value, — its  strict  definition. 11 

Distinct  from  Price,  and  from  Utility. 

Limits  of  Value — Utility — Cost 13 

Law  of  Supply  and  Demand — Monopolies 14 

The  Practical  End  of  the  Science 15 

Its  four  leadinar  Divisions 15 


Till  CONTENTS. 


FII\ST   DIVISION. 

CHAPTER  III. 
Production. 


I>AGH 

its  Elements — Nature's  Gifts — Human  Labor 17 

Threefold  Subdivision 18 

Labor — Capital — The  Cooperation  of  these  two  forces. 

CHAPTER  IV. 
Labor. 

Definition — A  Measure  of  Value 19 

Kinds  of  Labor.     1.  Physical  labor.     2.  Mental  labor 20 

What  Physical  labor  does 20 

What  Mental  labor  does  directly 21 

1.  Discovery.     2.  Invention.     3.  Oversight. 

Labor  indirectly  concerned  in  production 24 

Labor  as  Productive  or  Unproductive.. 25 

This  distinction  discarded. 

Changes  effected  by  Labor 26 

1.  Transmutation.  2.  Transformation.   3.  Transportation. 

Their  Relation  to  each  other. . ,  28 


CHAPTER  V. 

Means  for  Increasing  the  Effectiveness  of 
Human.  Labor. 

Natural  Agents  denned 32 

Agents  which  create  Momentum 35 

Animate  Agents 35 

Inanimate  Agents . .  . » 36 

1.  Gunpowder,    Dynamite.      2.  Wind.     3.  Water-power. 

4.  Steam. 
Advantages  of  Inanimate  over  Animate  Agents     4C 

1.  Amount  of  Momentum.     2.  Continuity.     3.   Economy. 

4.  Personal  Safety.    5.  Freedom  from  Pain.    G.  Increased 

Velocity. 


CONTENTS.  IX 

PAGE 

Agents  by  which  Momentum  is  applied 43 

Effects  produced  . . . : 4o 

1.  Change    of    Direction.      2.  Power    for    Velocity.      3. 
Power  concentrated.     4.  Delicate   operations.     5.  Power 
accumulated.     6.  Sudden  force  made  continuous. 
Lord  Jeffrey's  description  of  the  Steam-engine 47 

CHAPTER  VI. 
Division  of  Labor. 

The  Principle — how  illustrated 48 

Essential  to  Civilization   49 

The  Principle  implies  two  things 51 

1.  Analysis.     2.     Distribution  of  parts. 

Advantages  of  Division  of  Labor. 51 

1.  Shortens  apprenticeship.     2.  Saves  time  in  changing 
operations.     3.  Saves    time    in    adjusting    tools.     4.  In- 
creases  skill.     5.  Suggests   inventions.     6.  Employs   di- 
verse capacities. 
Application  to  Intellectual  Labor 56 

CHAPTER  VII. 
Limitations  to  Division  of  Labor. 

Four  Restrictions 58 

1.  The  Nature  of  the  Process.     2.  Deficiency  of  Capital. 

3.  Limited  demand — Circumstances  affecting    demand. 
a.  Number  of  Consumers,     b.  Wealth  of  people,     c. 
Cost  of  the  article,     d.  Facilities  of  Transportation. 

4.  Limits  of  Executive  Capacity. 

Evils  incident  to  Division  of  Labor (54 

1.  Danger  to  Health.  "2.  Contraction  of  Mind.  3.  Loss 
of  Independence.  4.  Combinations. 

International  Division  of  Labor .    06 

Conditions  of  increase  of  Wealth 71 

1.  Understanding  Nature's  Laws.  2.  Means  of  applying 
them.  3.  Adjustment  of  Labor.  4.  Regard  to  local  Re- 
sources. 


X  CONTENTS. 

CHAPTER  VIII. 
Capital. 

PAGE 

Definition  of  Capital 73 

Not  identical  with  wealth — Not  synonymous  with  Money. 

In  Origin,  the  fruit  of  past  labor  saved 74 

Forms  of  Capital 7(J 

1.  Materials.  2.  Implements  and  Machinery.  3.  Means 
of  Sustenance.  4,  Finished  products. 

Consumption  of  Capital 79 

Destruction  necessary  to  production  of  value. 

Productive  and  Unproductive  Capital 81 

This  distinction  discarded. 

Fixed  and  Circulating  Capital 83 

The  line  of  distinction  not  absolute.  The  tendency  to 
turn  circulating  into  fixed  capital  involves  two  dangers — 
1.  That  of  over-production.  2.  That  of  too  sudden  ab- 
sorption of  available  means.  Money  to  be  classed  as 
fixed  capital. 

CHAPTER  IX. 
Co-operation  of  Labor  and  Capital. 

Labor  and  Capital  true  Partners 88 

Most  harmoniously  united  in  one  person 89 

Reasons  why  this  cannot  be  universal   ...    90 

1.  Capital  tends  to  rapid  increase.  2.  Men  have  diverse 
capacities  and  tastes.  3.  Large  establishments  necessary 
to  some  forms  of  production. 

Conditions  which  favor  the  Union  of  Labor  and  Capital 92 

1.  General  distribution  of  capital.     2.  Ratio  of  capital  to 
number   of    laborers.     3.  Assurance   of   just   reward   to 
each.      This   depends   on    a.   Division  of    property.      &. 
Just   laws.     c.   Unrestricted    freedom.     4.  Intellectual 
and  Moral  culture. 
Combinations  and  Co-operative  Associations 110 


CONTENTS.  XI 


SECOND  DIVISION. 

CHAPTER  X. 
Consumption. 

RAM 

The  Nature  of  Consumption 112 

Forms  of  Consumption 114 

1.  May  be  of  labor  or  of  capital.    2.  Voluntary  or  In- 
voluntary.    3.  Rapid  or  gradual. 

Objects  of  Consumption 116 

Consumption  for  Reproduction , 117 

Economic  rules  for  capital. 

a.  For  a  given  result,  use  as  little  as  possible.  6.  Use 
capital  of  no  greater  value  than  necessary,  c.  Con- 
sume every  utility  of  a  substance — all  the  fragments 
— all  the  values. 

Economic  rules  for  labor 120 

a.  Employ  no  more  labor  than  is  needed.  6.  Employ 
labor  of  no  higher  price  than  is  necessary,  c.  See  la- 
bor paid  for,  performed.  This  requires  superintend- 
ence, regularity  and  proper  tools. 

Consumption  for  Gratification 125 

Kinds  of  Gratification,  a.  Those  which  sustain  health 
and  life.  b.  Those  which  delight  sense  and  taste,  c. 
Intellectual  gratifications,  d.  Social  gratifications. 
e.  Moral  gratifications. 

Economy  in  gratifications 128 

Household  economy — Economy  of  Intellectual  and  Moral 
Gratifications. 

CHAPTER  XL 
Public  Consumption. 

Its  Nature 136 

Means  provided  by  Taxation 136 


Xll  CONTEXTS. 

FAUB 

Purposes  to  which  it  is  applied 139 

1.  For  support  of  Government.  2.  For  works  of  public 
advantage,  3.  To  advance  science  and  diffuse  intelli- 
gence. 4.  For  popular  education — How  far  should  the 
State  provide  higher  education  ?  5.  For  the  care  of  the 
insane,  the  blind,  the  deaf,  etc.  6.  For  the  Relief  of 
Poverty.  7.  For  the  Nation's  Defence. 
The  Scale  and  Agents  of  National  Expenditure 150 


THIJ\D   DIVISION. 

CHAPTER  XII. 
Distribution. 

The  Scope  and  Definition  of  this  Division 151 

The  Parties  to  be  recognized 152 

Laborers — Owners  of  Capital — The  Government. 

Sub-divisions 153 

CHAPTER  XIII. 
The  Remuneration  of  Labor. 

Terms  used — Wages — Salaries — Fees 154 

Distinction  of  Nominal  and  Real  Wages ....   156 

The  difference  caused  by,  1.  Fluctuations  in  purchasing 
power  of  money.  2.  Forms  of  payment.  3.  Regularity 
of  employment.  4.  Duration  of  power  to  labor. 

Nominal  and  Real  Cost  of  Labor 160 

Difference  in  industrial  efficiency  caused  by,  1.  Peculiari- 
ties of  race.  2.  Qualities  of  diet.  3.  Personal  habits. 
4.  Intelligence  of  the  laborer.  5.  Technical  education 
and  environment.  0.  Cheerfulness  and  hopefulness  in 
labor. 

Leading  Considerations  determining  Wages 166 

1.  Cost  of  living.  2.  Value  of  products — The  wage  fund 
theory.  3.  Customary  rate  of  wages.  4.  Most  influen- 


CONTENTS.  X11I 


tial  of  all,  competition.  Combinations  to  resist  competition 
— Strikes — Trades-unions — Combinations  of  employers. 
5.  The  Golden  Rule. 
The  General  Law  of  Wages 181 

CHAPTER  XIV. 
Variations  in  the  Remuneration  of  Labor. 

Special  Circumstances  affecting  Wages 182 

Ease  or  difficulty  of  employment — Skill  required — Con- 
fidence reposed — Constancy  of  employment — Certainty  of 
success. 

Salaries,  Commissions  and  Fees 185 

Self-made  men — Educated  men — The  learned  professions 
— Artists,  Authors — Force  of  custom — Offices  of  honor. 

Remuneration  for  Women's  labor :. .   190 

a.  Physical  and  mental  constitution,  b.  Home  sphere. 
c.  Prospective  marriage,  d.  The  actual  organization 
of  industry,  e.  Feminine  instincts,  f.  Partial  sup- 
port from  friends. 

The  case  of  women  of  genius — Conclusions,  1.  Absolute 
equality  between  the  sexes  unattainable.  2.  Present  in- 
equality unreasonable.  3.  The  true  aim  of  efforts  for 
reform.  4.  Woman  an  equal  partner  in  the  home. 

CHAPTER  XV. 
Remuneration  of  Capital. 

Capital  entitled  to  Remuneration 197 

Rent — its  Definition 199 

Several  kinds  of  rent — Ricardo's  theory. 
Rent  of  agricultural  lands  depends  on. ...    207 

1.  Productiveness,    by   reason   of   a.  Fertility,      b.  Situ- 
ation. 

2.  Growth  and  Concentration  of  Population. 

3.  Incidental  circumstances,     (t.  Natural  beauty  of  situ- 
ation,     b.  Character  of    neighborhood,      c.  Improve. 

.  inents. 


Xiv  CONTEXTS. 

PAOH 

Rent  of  Mining  Lands 209 

Bents  in  Cities 210 

The  Fashionable  quarter — Business  centres. 

Why  Rent  is  less  than  Interest . .   212 

1.  Security  of  property  in  land.  2.  Title  easily  estab- 
lished. 3.  Influence  of  landholders.  4.  Prevalent  desires 
of  men.  5.  Prospective  increase  of  value. 


CHAPTER  XVI. 
Interest. 

Definition 215 

Considerations  determining  Rate  of  Interest 218 

1.  Risk,   depending   on    a.  Mode   of   employing    capital. 

l>.  Character  of  borrowers,      c.  Character  of  govern- 
ment. 

2.  Convenience  of  investment 221 

a.  Facility  of  transfer,    b.  Permanency  of  investment. 
c.     Punctuality  of  payment. 

3.  Productiveness  of  capital 223 

a.  Fertility  of  land.     b.  Productiveness  of  industry. 
c.  Demand  for  exchange. 

4.  Ratio  of  Demand  to  Supply  of  Capital 224 

Why  Interest  in  a  new  country  is  high 225 

Advance  of  Settlement  reduces  Interest , . . . .   226 

Freedom  of  Capital  adjusts  Supply  and  Demand 227 

Rate  of  Interest  not  an  index  of  Prosperity 229 

].  Interest  raised  by  risk  indicates  adversity.  2.  Raised 
by  increased  productiveness,  prosperity.  3.  Reduced  by 
diminished  risk,  prosperity.  4.  Reduced  by  stagnation, 
adversity. 

Usury  Laws  unreasonable , 230 

1.  They  violate  the  right  of  property.  2.  Impossible  to 
fix  a,  price  for  capital.  3.  The  price  of  money  especially 
variable.  4.  Usury  laws  increase  fluctuations  of  interest. 

5.  They  cannot  be  enforced. 

Dividends — Definition 2o4 

Dividends  include  Interest  arid  Profits  . .  2o~ 


CONTENTS.  XV 

CHAPTER  XVII. 
Distribution  of  Profits.  PAOB 

Definition  of  Profits 239 

Profits  increased  by  spending  less  or  producing  more. 
Percentage  on  capital  not  a  true  measure  of  profits. 

Capita]  may  not  claim  all  the  Profits 24:5 

Co-operative  Associations 245 

Capitalists,  Managers  and  Laborers  to  share  Profits  .<,* 246 

I 

CHAPTER  XVIII. 
Revenues  of  the  Government. 

A  Problem  of  Political  Economy 248 

Taxation — Adam  Smith's  Maxims  249 

Direct  and  Indirect  Taxation 250 

Heavy  taxes  on  injurious  articles. ...    252 

Tariffs — Specific  and  Ad  valorem  Duties   253 

Two  Systems  of  Taxation  in  America 254 

National  Taxation  chiefly  Indirect  by  duties   255 

Also.  a.  Excises,    b.  Stamps,    c.  Licenses,    d.  Income  tax. 

State  Taxation — Direct 258 

Mode  of  assessment  and  collection. 
Taxing  Evidences  of  Debt  involves  double  Taxation 259 


FOURTH   DIVISION. 

CHAPTER  XIX. 
Exchange. 

Nature  of  Exchange 263 

Val  ue  the  central  term 2C4 

Purchasing  power — A  relative  term — Distinct  from  price 
— Implies  utility  and  cost — Maximum  and  minimum  lim- 
its— The  general  formula  of  value. 

The  effect  of  variation  of  demand  and  supply  depends  on 
a.  Durability  of  the  article,     b.  Ease  of  increasing  sup- 
ply,    c.  The  article  as  a  necessity  or  a   luxury,     d. 
.Relation  to  fashion. 


XY1  CONTENTS. 

PAOB 

J.  S.  Mill's  Fundamental  Principles  of  Exchange 267 

Three  classes  of  articles.     1.  Things  which  cannot  be  in- 
creased.    2.  Things  multiplied  at  moderate  expense.     3. 
Things  multiplied  at  extraordinary  cost. 
Respecting  these  it  is  to  be  observed, 

1.  Value  is  a  relative  term,  hence  a  general  rise  or  fall  of 
all  values  impossible.  2.  Market  value  depends  on  de- 
mand and  supply.  8.  Things  have  a  natural  value  to- 
wards which  market  value  tends.  4.  Natural  value= 
cost  value  except  with  some  things  which  have  a  scarcity 
value.  5.  Things  which  cannot  be  increased  have  a  per- 
manent scarcity  value.  6.  Monopoly  value  means  scar- 
city value.  7.  The  cost  value  of  a  thing=cost  value  of 
the  most  costly  portion  of  it,  sold.  8.  Causes  of  perma- 
nent high  value. 

The  Necessity  of  Exchange 270 

International  Exchange 273 

Agents  of  Exchange 275 

Retail  merchants — Middle-men — Factors — Jobbers — Ship- 
ping merchants — Importers — Bankers — Brokers — Under- 
writers. 


CHAPTER  XX. 
Money  an  Instrument  of  Exchange. 

Difficulties  of  Exchange  by  Barter 282 

Money  Defined — Its  two  Functions 284 

A  Standard  of  value — A  Medium  of  exchange. 

Whatever  measures  Value  must  possess  Value 285 

Essential  qualities  of  a  Medium  of  Exchange 287 

Stability  and  precision  of  value — Universal  acceptable- 
ness — Divisibility. 

Articles  used  as  Money 289 

Necessary  qualities  of  -Money 290 

Qualities  which  fit  Gold  and  Silver  for  the  purpose .   2!J3 

1.  Intrinsically  desirable.  2.  They  cost  labor.  3.  Large 
value  in  small  bulk.  4.  Divisible  without  loss.  5.  Qual- 
ity uniform.  6.  Value  easily  verified.  7.  Indestructible. 
8.  Adapted  to  each  other. 


CONTENTS.  XV11 

PAOB 

General  Truths  concerning  Money 296 

1.  Money  and  the  article  exchanged  for  it  equal  in  cost. 

2.  Universal  commerce  equalizes  cost  and  supply  of  money. 

3.  The  amount  of  money  small  in  proportion  to  the  whole 
trade.    4.  Increase  of  production  and  trade  demands  in- 
crease of  money.     5.  Abundance  of  money  not  a  certain 
index  of  prosperity.     6.  A  false  maxim  refuted. 

Agency  of  Government  respecting  Money 299 

1.  To  define  a  legal  tender.     2.  To  coin  the  metals.  Coin- 
age must  have  regard  to,  1.  Purity  of  metal.     2.  Size. 
3.  Form. 
Seignorage — A  uniform  international  coinage  desirable. 

The  question  of  a  Double  Standard > .     305 


CHAPTER    XXI. 
Credit  an  Instrument  of  Exchange. 

The  Nature  of  Credit 309 

The  Forms  of  Credit 310 

1.  Book  Accounts.  2.  Loans.  3.  Mercantile  Paper.  4. 
Bank  Deposits.  5.  Stocks.  6.  Bonds.  7.  Notes  for  Cir- 
culation. 

The  Useful  Functions  of  Credit 313 

1.  It  brings  wealth  into  use  as  capital.     2.  Gives  efficiency 
to  industrial  talent.     3.  Quickens  exchanges.     4.  A  direct 
instrument  of  exchange.     5.  Credit  may  under  limitations 
enter  into  currency. 
For  all,  a  basis  of  sound  money  indispensable. 

The  Mischievous  Abuses  of  Credit 321 

1.  Too  freely  granted.  2.  Used  for  wild  speculation.  3. 
Extravagance  of  debtors.  4.  Confidence  operations.  5. 
Over-estimate  of  assets.  6.  Betrayal  of  trusts.  7.  Ex- 
cessive issue  of  currency. 

Consequent  Mischiefs 325 

a.  Fluctuating  prices,  b.  Enhanced  risks  of  business. 
c.  Trade  made  a  game  of  chance,  d.  Moral  sense 
deadened,  e.  Force  of  contracts  relaxed. 


xvm  CONTEXTS. 


CHAPTER  XXII. 
Banks  and  Currency. 

PAGB 

Banks,  Agents  of  Credit 329 

Three  Offices  of  Banks ...    329 

1.  To  collect  and  hold  money  in  safe  keeping.  2.  To  loan 
and  discount  money.  3.  To  issue  circulating  notes. 

Facts  from  the  History  of  Banks 332 

Bank  of  Venice — of  Genoa — of  Amsterdam  and  Hamburg 
— of  England — Scotch  Banking  System — Bank  of  France. 

Banks  in  the  United  States 336 

State  banks— The  Suffolk  bank  system — Safety-fund 
banks — Free  banking — Two  United  States  banks — The 
National  bank  system — Private  banks — Savings  banks. 

The  Liabilities  and  Resources  of  our  National  Banks 341 

Liabilities.  1.  Capital  Stock.  2.  Circulation.  3.  Deposits. 
4.  Balances  due  other  banks.  5.  Reserves.  6.  Undivided 
Profits.  7.  Miscellaneous  liabilities. 

Resources.  1.  Loans.  2.  U.  S.  bonds  deposited  for  cir- 
culation. 3.  Bonds  and  stocks  held  as  investments.  4. 
Balances  due  from  other  banks.  5.  Real  estate.  6.  Cash 
items.  7.  Currency.  8.  Funds  to  redeem  circulation.  9. 
Miscellaneous  items. 

The  Sources  of  Profits  of  National  Banks 343 

1.  Interest — a.  On  U.  S.  bonds,     b.  On  circulating  notes. 
c.  On  remaining  capital,     d.  On  deposits  loaned. 

2.  Premiums  on  exchange.     3.  Commissions  for  collec- 
tions. 

Currency — Four  Kinds 344 

1.  Value  currency.  2.  Mercantile  currency.  3.  Mixed 
currency — Distinction  between  ultimate  redemption  and 
immediate  convertibility — Precautionary  measures  of 
Bank  of  England.  4.  Credit  currency,  transfers  without 
paying  debts — Cannot  go  abroad — Keeps  prices  fluctuat- 
ing— Lays  a  direct  tax  on  the  people — Is  a  forced  loan — 
Disturbs  commerce  and  industry— Demoralises  a  people. 


CONTENTS.  XIX 

CHAPTER  XXIII. 
Free-Trade  vs.  Protection. 

PAS! 

Definition  of  the  two  terms 354 

The  Presumption  in  favor  of  Free-Trade 355 

1.  Freedom  a  general  economic  law.  2.  The  right  of 
property  implies  freedom.  3.  Social  instincts  prompt  to 
free  exchange.  4.  Free-trade  promotes  the  peace  of  na- 
tions. 5.  Nature's  varied  gifts  designed  for  one  human 
family. 
Arguments  for  Protection 358 

1.  Necessary  to  varied   industry — a.  Every  country  has 

varied  resources,  b.  Also  diversity  of  talent,  c.  Men 
have  diverse  wants,  d.  Varied  industry  makes  a 
home-market.  e.  Promotes  social  and  moral  ad- 
vancement. 

All  this  admitted.  But  is  Protection  necessary  to  secure 
these  advantages ? — It  cannot  add  to  natural  resources — 
nor  create  capita] — nor  multiply  labor — It  only  changes 
direction  of  labor  and  capital — No  protected  infant  indus- 
try ready  to  dispense  with  this  aid. 

The  result  is  reached  in  a  better  way 364 

a.  Human  industry  has  a  natural  development,  b. 
Free  competition  is  its  best  stimulus,  c.  As  labor 
and  capital  increase  all  resources  are  used.  d.  The 
instinct  for  accumulation  a  safe  guide,  e.  Artificial 
forcing  produces  reaction.  /.  Foreign  products  pur- 
chased by  fruits  of  home-labor,  g.  Foreign  competi- 
tion cannot  crush  the  natural  growth,  h.  Artificial 
nursing  makes  a  sickly  growth. 

2.  Protection  maintains  National  Independence 365 

3.  Agricultural  products  need  a  home-market 367 

4.  Protection  must  resist  the  competition  of  pauper  labor  3(>9 

5.  Protection  develops  skill 369 

6.  Protection  a  means  of  retaliation l!?0 

7.  Protection  sustained  by  wise  advocates  aud  by  past 
usage  of  nations 370 

Positive  Objections  to  Protection 372 

1     It    fosters   antagonism   of   industries.     2.  It   leads   to 


XX  CONTEXTS. 

PAOH 

over-production  and  stagnation.     3.  It  lays  a  heavy  tax,  372 
yet  reduces  revenues.     4.  It  is  an    unstable   policy.     5. 
Demoralizes  legislation.     6.  Corrupts  public  morals  and 
civil  service. 

Historical  Results  examined 877 

Protection  a  relic  of  Feudal  restriction  and  isolation — 
The  experiment  of  Free-trade  between  our  States. 

CHAPTER  XXIV. 
Railvray  Corporations. 

Benefits  of  Railways,  words  of  Judge  Paine    381 

Nature  of  a  Railway  Corporation 382 

1.  A  creature  of  the  State.  2.  An  ageut  of  the  State.  3. 
A  practical  monopoly. 

Relations  of  Railway  Corporations  to  general  industry 385 

1.  They  give  the  last  addition  of  value.  2.  Enlarge  the 
market.  3.  Quicken  exchanges.  4.  Depend  on  produc- 
tiveness of  industry.  5.  May  diminish  returns  of  in- 
dustry. 

Administration  of  Railway  Corporations 386 

A  few  managers  wield  great  power. 

Abuses  in  the  management 387 

Reckless  expenses  and  credit — Interests  of  stockholders 
sacrificed  by  leases  and  combinations — Credit  Mobilier — 
Stock  speculations — Watering  stock — Ruinous  competi- 
tions— Carrying  legislation  by  bribery. 

Statesmanship  and  public  sentiment  must  correct  evils 390 

CHAPTER  XXV. 
Commercial  Crises. 

Speculation  the  prime  cause 391 

A  Panic  the  turning  point 3'.):? 

The  Gold  Bank  and  Trust  Company  of  San.  Francisco — 
The  Tea  specalation  of  1839  in  England — Tobacco-raisers 
on  tlie  Connecticut  River — Western  land  speculations  and, 
the  crisis  of  1837. 


CONTENTS.  XXI 

PACK 

The  practical  problem  of  commercial  crises 397 

Economic  principles  to  be  regarded. 

The  world- wide  financial  derangement  from  1875-8 398 

Causes,  1.  Increased  production  by  labor-saving  machin- 
ery. 2.  Expansion  of  credit  necessary  to  large  establish- 
ments. 3.  Extravagant  ways  of  business  and  of  living. 
4.  Increased  expense  of  wars  and  expanded  national 
credit.  5.  The  United  States  war  of  the  Rebellion  and 
Franco-German  war. 


POLITICAL    ECONOMY. 


CHAPTER    I. 

PRELIMINARY   OBSERVATIONS. 

Origin  of  the  Name,  —  Mankind  are  constituted 
mutually  dependent  and  cooperative.  Hence  by  neces- 
sity, they  live  in  Society  and  the  highest  good  of  the 
individual  is  identified  with  a  common  good.  The  first 
and  simplest  form  of  society  is  the  Family,  living  under 
a  common  house-roof.  Thus,  very  naturally,  the  Greeks, 
whose  inquisitive  minds  pried  into  the  philosophy  of  all 
things,  grouped  the  elementary  principles  of  men's  social 
life  under  the  term  omovofua, — economy,  the  law  of  the  house. 
They  used  the  term  with  reference  mainly  to  a  thrifty 
provision  of  comforts  for  the  well-being  of  the  members 
of  the  household. 

As  individuals  make  up  families,  so  families  make  up 
cities  and  states.  The  elementary  principles  of  the 
broader  association  are  essentially  the  same  with  those  of 
the  primary  societies.  Hence  the  term  Political  Econ- 
omy, applied  to  the  community,  in  a  body  politic,  as 
domestic  economy  is  to  the  household.  Aristotle  first  used 
the  term  with  a  signification  vague  and  general.  It  has 
come  now  to  have  a  technical  meaning.  Usage  has  re- 
cognized its  intrinsic  fitness  to  indicate  that  department 
of  truth  which  is  concerned  with  the  well-bein°r  of  men  in 


4  POLITICAL    ECONOMY. 

society  as  affected  by  wealth.  It  is  not  likely  to  give  place 
to  any  substitute.  The  adjective  "Political"  means 
simply  pertaining  to  the  city  or  state.  It  implies  nothing 
of  politics  in  the  ordinary  sense  of  that  word. 

Its  Definition. — Political  Economy  is  that  branch  of 
Social  Science  ivhich  treats  of  the  production  and  applica- 
tion of  ivealth  to  the  rvell-being  of  men  in  society.  It  is  a 
branch  of  true  science. 

By  Science,  as  the  word  is  here  used,  we  mean  a  Sys- 
tematic arrangement  of  the  laws  ivhich  God  has  established, 
so  far  as  they  have  been  discovered,  of  any  department  of 
human  knowledge.  It  is  obvious,  upon  the  slightest  reflec- 
tion, that  the  Creator  has  subjected  the  accumulation  of 
the  blessings  of  this  life  to  some  determinate  laws.  Every 
one,  for  instance,  knows  that  no  man  can  grow  rich,  with- 
out industry  and  frugality.  Political  Economy, 
therefore,  is  a  systematic  arrangement  of  the  laws  by 
which,  under  our  present  constitution,  the  relations  of 
man,  whether  individual  or  social,  to  the  objects  of  his 
desire,  are  governed.  Man's  hand  joins  with  the  hand  of 
fellow-man  and  with  the  powers  of  nature  to  produce 
wealth.  Hence  the  processes  and  the  legitimate  end  of 
the  science  imply  a  combination  of  the  laws  of  the  material 
world  with  the  laws  of  man's  social  nature. 

Fundamental  Laws. — The  science  is  based  on  four 
fundamental  laws. 

1.  God  has  made  man  a  creature  of  desires  and  con- 
stituted the  material  world  in  which  he  lives  with  qualities 
and  powers  available  for  the  gratification  of  those  desires. 
As  men  advance  in  individual  and  social  development, 
their  desires  are  multiplied.  At  the  same  time  by  their 
increased  intelligence  and  ingenuity,  the  resources  of 
nature  are  unfolded  in  full  proportion.  Desire  stimu- 


PRELIMINARY    OBSERVATIONS.  5 

lates  invention  and  successful  invention  wakes  new  desires. 
There  is  no  assignable  limit  to  the  development  of  either 
men's  desires  or  natures  resources. 

2.  For  desires  above  the  very  simplest  wants  of  the 
animal,  man  must,  by  Labor,  force  nature  to  yield  her  hid- 
den resources.     Things  most  essential  to  mere  animal  life 
are  furnished  by  nature  in  available  form,  demanding,  on 
the  part  of  men,  only  such  exertion  as  is  necessary  to  take 
and  use  them.     We  can  hardly  avoid  the  light,  or  refrain 
from  breathing  the  air.     Water  bubbles  up  from  the  ground 
to  quench  thirst,  and  the  spontaneous  vegetation  of   the 
earth  offers  something  already  prepared  for  food.    But  for 
those  desires  which  unfold  with  the  exercise  of  our  rational 
faculties,  from  anticipations  of  the  future,  from  the  con- 
ception of  possible  enjoyments,  from  the  choice  of  a  free- 
will making  selection  according  to  taste,  from  the  love  of 
admiration,  from  the  love  of  power,  from  the  spirit  of 
benevolence — for  these,  nature  hides  the  means  of  gratifi- 
cation and  yields  them  only  to  the  toil  of  contriving  mind 
and  muscular  force.      The  conveniences  and  comforts  of 
civilized  life  are  the  fruits  of  human  Labor. 

3.  The  exertion  of  labor  establishes  a  right  of  Property 
in  the  fruits  of  labor,  and  the  idea  of  exclusive  jjossession  is 
a  necessary  consequence.     Personal  rights  begin  with  the 
consciousness  of  individual  being  and  of  individual  achieve- 
ment ;  and  the  idea  of  labor  expended  in  the  production 
underlies  directly  or  indirectly  the  property-right  to  any- 
thing.    Originally  the  thing  produced  belongs  to  him  who 
produced  it  by  an  intuitive  conception  of  right,  and  the  act 
of  appropriation  is  as  instinctive  as  the  act  of  breathing. 

4.  With  the  right  of  property,  comes  al<o  the  possibility 
and  the  rigid  of  Exchange,  or  the  mutual  transfer  of 
possessions  between  man  and  man,  and  batween  different 
communities  and  countries.  One  may  do  what  he  will  with 
his  o'.vn.  The  transfer  in  good  faith  and  perpetuity  of  an, 


6  POLITICAL  ECONOMY. 

object  gained  by  labor  constitutes  a  title  to  possession  as 
well  grounded  as  that  which  rests  immediately  on  labor 
performed.  We  are  brought  thus  into  the  sphere  of  man's 
social  life  with  its  manifold  and  complicated  relations,  from 
which  proceed  the  most  powerful  incitements  to  stimulate 
desire,  to  nerve  up  labor,  to  maintain  rights  and  to  multi- 
ply and  distribute  the  innumerable  elements  of  wealth. 

Materials  of  the  Science. — The  materials  of  this 
branch  of  science  lie  fixed  in  the  nature  of  man,  and  of 
the  physical  world  which  he  controls,  and  in  the  structure 
of  human  society.  They  are  drawn  out  by  the  study  of 
men's  wants,  the  investigation  of  nature's  resources,  the 
study  of  statistics  of  human  invention  and  industry,  and 
the  defining  of  principles  for  common  and  reciprocal  agencies 
in  social  relations.  This  science  combines  elements  of 
both  physical  and  metaphysical  philosophy.  It  differs  from 
the  purely  physical  sciences  in  that  the  phenomena  of 
human  volition  are  continually  involved  in  the  system.  It 
differs  from  the  branches  of  intellectual  and  moral  science 
in  that  it  contemplates  all  soul-phenomena  with  reference 
mainly  to  certain  physical  results.  Its  leading  propositions 
must  often  express  tendencies  rather  than  actual  facts.  Its 
conclusions  must  rest  often  on  the  balance  of  probabilities, 
rather  than  on  pure  and  perfect  demonstrations. 

The  Motive  to  Effort. — Political  Economy  regards 
self-interest  as  a  universal  motive  of  human  action,  and  it 
studies  the  mutual  relations  and  intercourse  of  men  as  gov- 
erned by  that  motive.  It  assumes  that  labor  is  irksome, 
and  that  every  body  desires  the  utmost  possible  gratifica- 
tion with  the  least  possible  exertion.  Its  great  problem  is 
to  find  a  common  interest  which,  as  the  resultant  of  indi- 
vidual self-interest,  properly  combines  and  regulates  the 
separate  forces.  Its  principles  point  to  the  golden  rule  oj 


PRELIMINARY   OBSERVATIONS.  7 

Christ  as  the  formula  by  which  the  problem  must  be  finally 
solved. 

Conflicting    Desires. — Three    desires  inherent  in 
every  man  contend  for  the  mastery. 

1.  Desire  of  Ease. 

2.  Desire  of  Present  Gratification. 

3.  Desire  of  Means  to  ensure  Future  Gratification. 
The  resultant  of  these  conflicting  desires  measures  for 

any  one  his  interest  in  the  accumulation  of  wealth.  The 
degree  in  which  the  other  two  are  held  subordinate  to  the 
third  determines  the  productive  activity  of  a  community. 


CHAPTER   II. 

DEFINITIONS  AND   DIVISIONS. 

Wealth. — This  is  the  central  term  in  Political  Econ- 
omy. The  word  is  commonly  used  loosely  and  vaguely. 
A  clear  and  strict  definition  of  it  is  essential  to  a  right 
understanding  of  this  science. 

The  generic  term  Wealth  embraces  all  useful  things  which 
can  be  appropriated  and  exchanged.  This  definition  com- 
bines two  qualities,  first,  Utility  or  fitness  to  gratify  desire  ; 
second,  AppropriabiUty,  or  fitness  to  be  seized  and  held  in 
exclusive  possession.  Whatever  has  both  these  qualities  in 
any  degree,  is  a  part  of  wealth.  Whatever  lacks  either  is 
excluded  from  wealth.  Perhaps  we  cannot  say  of  anything 
that  it  has  absolutely  no  utility,  for  God  has  made  nothing 
in  vain.  But  in  their  place,  relatively  to  gratifying  any 
desire  of  man,  the  sand  on  the  sea  shore,  the  crags  of  the 
mountain-top,  the  debris  of  a  demolished  building  are 
without  utility.  No  accumulation  of  such  things  can  be- 
come wealth.  On  the  other  hand,  such  things  as  the  air 
and  the  sunlight  have  the  very  highest  utility,  insomuch 
that  they  are  essential  to  the  very  life  of  every  man,  but 
their  universal  diffusion  precludes  their  being  appropriated 
as  the  exclusive  possession  of  any.  Therefore  they  form 
no  part  of  wealth. 

Errors  respecting  Wealth. — 1.  It  is  an  error  to 
identify  wealth  with  money.  Money,  though  it  measures 
all  things,  and  is  a  medium  of  exchange  for  all,  itself  forms 


DEFINITIONS    AND    DIVISIONS.  9 

but  a  small  part  of  the  sum  of  wealth.  It  is  desirable  not 
for  its  own  sake  but  for  the  wealth  in  other  forms  which 
it  can  purchase.  The  so-called  "Mercantile  System" 
which  long  ruled  the  policy  of  nations  with  mischievous 
effects,  rested  upon  this  radical  error.  Its  doctrine  was 
that  whatever  tends  to  heap  up  money  or  bullion  in  a 
country  adds  to  its  wealth,  and  whatever  sends  the  precious 
metals  out  of  a  country  impoverishes  it.  Hence  commerce 
was  conducted  with  a  sole  view  to  bringing  gold  and  silver 
into  a  country.  That  system  is  now  exploded,  but  the 
false  idea  still  lingers  in  many  minds  to  confuse  and  com- 
plicate problems  of  both  private  and  public  finance. 

2.  It  is  an  error  to  class  as  wealth  human  beings  or  their 
native  capacities  or  acquired  abilities.     Physical  strength, 
intellectual  genius,  moral  character,  professional  skill  are 
possessions  of  highest  worth.     But  they  are  an  inseparable 
part  of  one's  own  being.     They  cannot  be  directly  trans- 
ferred from  one  to  another.     They  are  powers  for  the  pro- 
duction of  wealth,  but  only  the  products  which  come  from 
their  exercise  can  be  counted  into  the  sum  of  wealth. 

3.  It  is  an  error  to  regard  mortgages,  bonds,  stocks  and 
the  lilce  as  a  part  of  general  wealth.     These  things  only 
indicate  a  title  to  possession,  a  mode  in  which  some  real 
wealth  is  distributed.     The    mortgage    which    one  holds 
simply   divides    the  farm  on  which  it  rests  between  the 
nominal  owner  and  his  neighbor.     The  wealth  is  in  the 
farm.     It  is  not  increased  a  whit  by  the  mortgage  itself. 
A  bond  of  the  United  States  for  one  thousand  dollars,  only 
gives  its  holder  a  lien  on  the  solid  wealth  of  the  country 
for  that  amount,  to  be  drawn  some  day  from  the  tax-payers. 
A.  B.'s  certificate  for  fifty  shares  of  stock  in  a  railroad, 
means  that  he  is  the  owner  of  thut  proportion  of  the  land, 
the  rails,  the  engines,  the  cars  and  whatever  else  constitutes 
the  property  of   that  corporation.     Its  division  into  one 
hundred  thousand  shares  distributed  to  one  thousand  dif- 


10  POLITICAL   ECONOMY. 

ferent  persons  makes  no  more  of  that  wealth  than  if  a 
Vanderbilt  owned  it  all.  In  the  estimate  of  one's  individ- 
ual property,  he  may  count  in  all  that  he  owns  of  this  kind. 
The  fact  to  be  noted  is  that  these  do  not  add  to  the  sum 
of  general  wealth,  but  only  show  how  some  portion  of 
wealth  is  distributed.  They  are  Symbols  not  Substance. 
Many  a  mischievous  illusion  comes  from  mistaken  views 
of  these  things. 

4.  It  is  an  error  to  exclude  from  the  category  of  wealth 
everything  which  is  not  tangible  and  durable.  The  song  of  a 
Jenny  Lind  and  the  eloquence  of  a  Wendell  Philips  impart 
a  high  gratification  which  can  be  appropriated  by  those 
who  gain  admittance  to  the  hall  where  they  are  produced. 
The  song  is  produced  by  labor  applied  to  the  air,  which 
develops  hidden  properties  of  sound,  viz.,  tone,  melody, 
rhythm,  which  meet  a  human  desire.  What  more  can  be 
said  of  a  coat  made  by  a  tailor  ?  The  two  products  differ 
only  in  that  the  coat  gives  a  moderate  pleasure,  prolonged 
for  months,  and  may  be  laid  up  in  store  ;  while  the  song 
gives  a  keen,  it  may  be  ecstatic  enjoyment  for  an  hour, 
only  the  cherished  memory  of  which  can  be  retained.  It 
is  wealth,  impalpable,  evanescent,  consumed  as  soon  as  pro- 
duced. It  meets  our  definition,  though  it  cannot  be  stored 
or  counted. 

Sources  of  Wealth. — The  original  source  of  wealth 
is  the  bounty  of  God  in  nature.  Man  can  neither  create  a 
particle  of  matter  nor  impart  to  it  any  new  property.  He 
can  only  develop  and  modify  what  God  has  made,  which  is 
free  to  all,  restricted  only  when  actually  appropriated  by 
labor.  Over  the  whole  material  creation,  he  is  set  in  full 
authority  to  search,  to  subdue,  to  control  and  to  use. 

The  secondary  source  of  wealth  is  human  labor  exerted 
to  bring  forth  the  bounty  of  nature  in  form,  in  time,  in 
place,  suited  to  meet  the  desires  of  men.  This  gives  the 


DEFINITIONS  AND   DIVISIONS.  11 

right  of  possession  which  controls  both  the  gift  of  nature 
and  the  added  utility  imparted  by  labor. 

How  Wealth  is  increased. — Wealth  in  every  form 
must  be  perpetually  renewed.  It  is  maintained  only  by 
a  constant  process  of  reproduction,  i.  e.,  of  consumption  for 
reproduction.  It  grows  only  as  that  which  is  produced 
exceeds  that  which  is  consumed  in  capacity  to  gratify 
desire.  Mill  says,  "  The  greater  part  of  England's  wealth 
to-day  was  produced  within  the  last  twelve-month."  To 
accumulate  wealth,  labor  must  go  beyond  what  is  essential 
to  meet  immediate  necessities  ;  and  the  check  of  fore- 
thought and  abstinence  must  be  laid  on  the  immediate 
consumption  of  the  products  of  labor.  Hence  industry  and 
frugality  are  indispensable  conditions  of  the  increase  of 
wealth.  These  are  characteristics  which  distinguish  civil- 
ized from  savage  men,  and  thus  wealth  becomes  a  sign  of 
Civilization. 

Value. — In  ordinary  usage,  this  word  often  expresses 
only  a  vague  idea  that  the  thing  to  which  it  is  applied  is 
desirable.  But  as  a  technical  term  in  Political  Economy, 
it  holds  a  place  of  highest  importance.  Ambiguity  in  its 
use  causes  much  confusion  of  ideas  on  economical  problems. 
Hence  the  necessity  of  a  strict  definition  to  be  strictly 
adhered  to.  Formerly  a  distinction  was  made  between 
Intrinsic  Value  and  Exchangeable  Value.  But  all  that 
Avas  meant  by  intrinsic  value  is  better  expressed  by  the 
word  Utility,  and  this  is  now  quite  generally  adopted  in  its 
place,  leaving  value  with  one  distinct  signification  which 
may  be  stated  thus. 

Value  is  Purchasing  Power,  or  that  quality  in  an  object 
which  gives  it  power  to  command  other  objects  in  exchange. 
It  supposes  always  a  comparison  of  two  objects  in  vie\v 
of  an  exchange,  actual  or  contemplated.  It  is  not 


12  POLITICAL   ECONOMY. 

weight,  an  absolute,  inherent  quality  of  a  substance.  It 
cannot  be  discovered  by  examining  an  article  by  itself. 
Value  is  always  a  relative  term.  The  measure  of  it  pertain- 
ing to  anything  can  be  expressed  only  by  naming  some 
other  thing  for  which  it  can  be  exchanged — the  quid  pro 
quo.  Thus  the  value  of  a  hat  may  be  set  down  at  four 
bushels  of  wheat  or  a  quarter  of  an  ounce  of  gold,  be- 
cause it  will  command  so  much  of  one  or  the  other  in 
exchange. 

Value  in  Distinction  from  Price.  Value  is  the  power 
to  command  commodities  generally.  Price  is  that  power 
with  reference  to  a  single  article,  viz.,  Money.  Money  is  the 
general  standard  of  value,  and  so  value  may  be  indicated 
by  a  comparison  of  prices,  but  it  is  important  to  observe 
the  distinction  between  the  two  terms.  The  value  of  a 
specific  commodity  may  rise  or  fall.  Thus  the  hat  which 
brought  four  bushels  of  wheat  last  year,  may  bring  but 
three  this  year.  To  discover  which  of  the  two  has  changed 
in  value,  the  cause  affecting  one  or  the  other  must  be  in- 
quired into.  It  may  be  that  a  failure  of  crops  lias  en- 
hanced the  value  of  wheat,  or  that  some  new  invention, 
cheapening  the  process  of  manufacturing,  has  lessened  the 
value  of  the  hat.  But  there  can  be  no  general  rise  or 
fall  of  all  values.  There  may  be  however,  a  general 
rise  or  fall  of  prices  in  consequence  of  some  cause,  like 
an  expansion  or  contraction  of  paper  currency,  which 
affects  money,  the  one  object  with  which  all  things  are 
compared. 

Value  in  Distinction  from  Utility. —  Utility  is  simply 
adaptedness  to  satisfy  a  want,  or  to  gratify  a  desire. 
Things  that  have  value,  have  always  utility  in  this  sense  of 
capacity  to  gratify  desire,  without  reference  to  the  quality 
of  the  desire  as  right  or  wrong,  wise  or  foolish.  The  power 
of  a  commodity  in  exchange  is  measured  by  its  desirable- 
ness. But  some  things  of  the  very  highest  utility  have  no 


DEFINITION'S   AND   DIVISIONS.  13 

value,  as  for  instance  air,  light,  water.  We  cannot  live 
without  them,  yet  they  have  no  value,  no  purchasing 
power,  because  the  supply  is  so  large  and  so  free  that  who- 
ever will  may  take  to  his  satisfaction  without  labor.  They 
cost  nothing,  and  they  cannot  ordinarily  be  appropriated 
in  exclusive  possession. 

The  Limits  of  Value. — With  these  distinctions  in 
mind,  it  is  plain  that  value  may  be  resolved  into  two 
elements,  viz. 

1.  Utility  =  desirableness  for  gratification. 

2.  Cost  =  difficulty    of    attainment,    measured    by 
the  amount  of    labor    necessary   to   secure   the 
object. 

By  these  two  elements  the  limits  of  value  are  defined. 
The  Maximum  limit  of  value  in  any  commodity  is  defined 
by  its  Utility.  That  is,  its  purchasing  power  is  determined 
by  the  intensity  of  desire  for  its  possession  by  the  parties 
to  the  exchange.  This  will  depend  on  a  variety  of  circum- 
stances, such  as  the  taste  of  individuals,  the  fashion  of  the 
day,  the  emergency  of  the  hour,  etc.  The  value  may  and 
often  does  fall  short  of  this,  but  can  never  go  beyond  it. 
We  seldom  give  for  a  loaf  of  bread  an  equivalent  which 
expresses  the  measure  of  its  utility  to  support  life.  But 
under  the  pressure  of  famine  its  value  is  crowded  up  close 
to  this  limit.  When  a  man  offers  ten  thousand  bushels  of 
wheat  for  a  choice  diamond,  he  expresses  only  the  intensity 
of  his  desire  for  the  glittering  gem. 

The  Minimum  Limit  of  Value  in  any  article,  for  any 
Jong  time,  is  defined  by  its  Cost,  that  is,  the  exponent  of 
the  labor  either  actually  expended  in  its  production,  or 
which  must  be  expended  for  its  reproduction.  When  the 
market  value  of  a  commodity  falls  permanently  below  its 
cost,  its  production  is  suspended.  If  however,  there  is 
good  reason  to  believe  that  its  value  will  rise  again,  it  may 


14  POLITICAL   ECONOMY. 

be  good  economy  to  tide  over  the  temporary  depression  by 
exchanging  at  a  rate  less  than  cost.  A  diamond  of  great 
beauty  may  become  the  property  of  one,  at  the  cost  only 
of  the  labor  of  picking  up  what,  by  good  luck,  he  chanced 
to  find.  Its  value  is  however,  estimated  by  the  probable 
labor  involved  in  a  continuous  search  to  obtain  its  equal. 
In  the  last  analysis,  the  comparison  is  of  labor  with  labor, 
and  it  is  true  as  has  been  said,  that  "service  for  service 
rather  than  commodity  for  commodity  is  the  rule  of  value 
and  the  law  of  exchange. " 

The  Law  of  Supply  and  Demand. — Between 
these  extreme  limits  of  value,  there  is  room  for  a  consider- 
able variation  which  is  determined  by  the  law  of  Supply 
and  Demand.  Concisely  stated,  this  law  is  that,  with  cost 
as  its  stable  foundation,  value  increases  directly  as  the  de- 
mand and  inversely  as  the  supply.  The  degree  of  variation 
thus  caused  depends  on  several  circumstances.  The  neces- 
saries of  life  are  more  affected  than  luxuries,  by  diminished 
supply.  Excessive  supply  reduces  the  value  of  perishable 
articles  such  as  fruits  and  fish,  far  more  than  that  of 
enduring  articles  like  iron  and  cloth.  Commodities  that 
can  be  quickly  produced  to  meet  a  special  demand  will  fluc- 
tuate but  slightly  in  value.  The  freaks  of  fashion  subject 
fancy  goods  to  far  greater  variation  than  staple  goods. 
Keduced  value  extends  demand,  and  enhanced  value  re- 
stricts demand  quite  beyond  the  mere  ratio  of  the  change. 
Thus  a  thousand  persons  will  use  cotton  cloth  at  ten 
cents  a  yard,  where  a  hundred  would  use  it  at  fifty  cents. 

Monopolies  artificially  limit  supply  for  the  purpose 
of  increasing  value.  Thus  it  is  said  that  at  one  time  the 
Dutch,  who  had  a  monopoly  of  the  trade  in  pepper,  actually 
destroyed  part  of  an  extraordinary  crop,  rather  than  per- 
mit the  market-value  to  be  reduced.  When  left  free  from 


DEFINITIONS   AND   DIVISIONS.  15 

artificial  interference,  demand  and  supply  rush  towards  an 
-  equilibrium;  and  the  condition  of  stable  equilibrium  is 
that  things  exchange  for  each  other  according  to  the  cost 
of  production,  or  as  some  express  it,  according  to  their 
natural  value. 

The  Practical  End  contemplated  in  Political  Econ- 
omy is  the  Production  of  wealth,  in  the  largest  measure 
and  of  the  highest  value,  and  its  application  to  the  fullest 
and  most  general  Satisfaction  of  men's  desires. 

DIVISIONS. — Logically,  the  science  resolves  itself  into 
two  leading  and  two  subordinate  divisions.  The  two  lead- 
ing divisions  are  PRODUCTION  and  CONSUMPTION. 

Production  is  the  act  by  which  we  confer  a  particular 
value  upon  any  object,  or  by  which  we  give  to  an  object  its 
adaptedness  to  gratify  desire.  We  can  neither  create  nor 
annihilate  any  thing.  All  that  we  can  do,  is,  to  modify 
what  already  exists.  When  we  so  modify  any  thing  that  it 
is  capable  of  gratifying  a  desire  which  before,  it  was  not  ca- 
pable of  gratifying,  our  so  doing  is  called  production.  Un- 
der this  division  are  presented  the  process  and  laws  which 
relate  to  the  development  of  wealth  by  the  creation  of  Value. 

Consumption  is  the  act  of  destroying  wealth  in  its 
use  for  the  gratification  of  desire.  The  destruction  of 
wealth  in  one  form,  for  the  sake  of  bringing  out  wealth  in 
•another  form  of  greater  utility  and  higher  value,  belongs 
to  the  department  of  Production.  The  destruction  of 
wealth  without  yielding  either  gratification  or  increased 
value,  as  when  goods  are  swept  away  by  flood  or  consumed 
by  fire,  is  of  itself,  only  a  calamitous  interference  with  the 
laws  of  our  science.  Under  this  second  division  we  study 
only  the  laws  which  govern  the  economical  use  of  wealth  to 
meet  wants  and  impart  gratifications. 

All  production  is  for  consumption.  Yet  consumption 
is  antagonistical  to  production,  as  it  uses  up  the  means  of 
production.  Yet,  again,  a  sound  and  healthy  consumption 


16  POLITICAL   ECONOMY. 

is  a  stimulus  to  production  ;  and  conversely,  profitable 
production  increases  consumption  as  it  multiplies  and 
cheapens  the  means  of  gratification. 

Between  these  two  leading  divisions  come  in  the  two 
subordinate  divisions,  DISTRIBUTION  and  EXCHANGE. 

Distribution. — The  productive  effect  of  human  ac- 
tivity is  greatly  increased  by  union  of  effort  and  division 
of  labor.  When  the  product  is  realized  and  the  results  are 
to  be  divided,  some  equitable  law  is  to  be  adopted  in  the 
distribution.  Under  Distribution  therefore,  are  embraced 
the  processes  and  laws  which  relate  to  the  division  of  the 
results  among  the  parties  who  unite  introducing  values. 

Exchange. — The  mode  of  every  man's  industry  is  de- 
cided by  his  individual  tastes,  capacities  and  circumstances. 
It  is  commonly,  however,  confined  to  the  creation  of  one 
kind  of  product,  inasmuch  as  it  is  thus  vastly  more  avail- 
able. His  desires,  on  the  other  hand,  are  as  innumerable 
as  the  objects  created  to  gratify  them.  He  creates  but  one 
value  and  he  wants  a  thousand.  Hence,  he  can  be  gratified 
by  means  of  no  less  than  nine  hundred  and  ninety-nine 
exchanges.  He  thus  parts  with  various  portions  of  the 
value  which  he  has  created,  for  the  sake  of  obtaining  values 
which  others  have  created.  Hence  the  necessity  of  uni- 
versal and  ceaseless  exchange.  Under  Exchange  are  brought 
to  view  the  processes  and  laws  luliich  relate  to  the  mutual 
transfer  of  values. 

The  channels  through  which  Production,  the  means, 
carries  its  results  on  to  Consumption,  the  end,  run  through 
the  domains  of  Distribution  and  Exchange.  The  processes 
and  laws  of  Production  and  Consumption  are  simple  and 
easily  apprehended.  The  difficult  problems  of  Political 
Economy  pertain  almost  entirely  to  the  matters  of  Dis- 
tribution and  Exchange. 

These  four  divisions  will  be  treated  of  in  the  order  in 
which  they  have  been  here  presented. 


CHAPTER   III. 

FIEST  DIVISION.—  PKODUCTION. 

IT  is  obvious  that  when  man  was  first  created,  there 
existed  nothing  but  this  earth,  with  its  various  substan- 
ces, their  qualities  and  relations ;  and  man,  with  his  vari- 
ous physical,  intellectual,  and  moral  powers.  The  dif- 
ference between  the  present  state  of  man  and  of  the 
universe  around  him,  and  the  original  state,  consists  in 
this  :  that  the  qualities  and  relations  of  things  have  now 
been  discovered,  and  rendered  available  for  the  service  of 
man  ;  and  the  intellect  of  man  has  been  cultivated,  and 
his  skill  improved,  so  that  he  is  able,  more  successfully,  to 
avail  himself  of  these  qualities  and  relations.  And  it  is 
also  obvious,  that  this  change  in  the  external  world  has 
been  produced  by  the  physical  and  intellectual  faculties  of 
man  ;  that  is,  by  human  industry.  The  whole  wealth  of 
the  world  has  been  created  by  the  union  of  human  industry 
with  the  materials  which  God  had  originally  spread  around 
us.  In  simplest  statement,  we  say  then, 

Wealth  is  produced  by  the  application  of  labor  to  natural 
objects. 

(a)  Some  labor  is  necessary  to  find  and  appropriate  most 
of  those  objects  which  nature  brings  forth  spontaneously 
in  a  form  to  gratify  desire. 

(b)  In   most  cases  further  labor  is  requisite  to  bring 
natural  objects  into  a  condition  fit  for  use.     Fig  leaves 
muse  be  sewed  together.     Game  and  fish  must  be  divided, 
cleansed  and  cooked.     Wheat  must  be  ground,   and   the 


18  PRODUCTION. 

flour  kneaded  and  baked,  and  so  on  up  to  the  transforma- 
tion of  sand  and  sea- weed, — silex  and  alkali,  into  glass. 

(c)  But  most  especially  for  the  advanced  processes  of 
production  essential  to  meet  the  wants  of  civilized  society, 
some  accumulation  of  the  products  of  former  labor  is  requi- 
site to  begin  with.  Materials  must  be  gathered,  instruments 
must  be  prepared  and  provision  must  be  made  for  the  sub- 
sistence of  the  laborer  during  the  process  of  production. 
To  these  products  of  former  labor,  as  concerned  in  pro- 
duction, the  name  Capital  is  applied. 

The  Production  of  wealth  thus  involves  the  combina- 
tion of  Labor  with  Capital,  and  this  branch  of  the  subject 
may  be  best  studied  under  the  threefold  sub-division  Labor 
— Capital — and  the  Co-operation  of  these  two  forces. 


CHAPTER  IV. 

LABOR. 

Definition. — Labor  is  the  voluntary  exertion  of  human 
beings  put  forth  to  attain  some  desired  object. 

We  say  "  human  beings"  for  the  toil  of  beasts  is  but 
the  agency  of  an  instrument,  reckoned  a  part  of  capital. 
We  say  "  voluntary  "  exertion,  for,  in  the  view  of  Political 
Economy,  the  involuntary  work  of  slaves  is  like  the  toil  of 
oxen,  the  mere  use  of  a  thing  owned. as  a  part  of  one's 
capital.  We  say  also  "for  a  desired  object,"  for  this  dis- 
tinguishes labor  from  play.  In  play,  we  are  satisfied  with 
the  mere  exercise  of  our  faculties.  In  labor,  we  seek  a 
further  end — a  result  which  comes  as  an  abiding  reward 
for  the  effort.  The  exertion  put  forth  in  play  is  often 
more  severe  than  that  of  labor,  as  we  see  on  the  ball-ground 
or  in  the  rowing  match  ;  but  the  distinction  is  always  clear. 
The  game  of  a  hired  base-ball  club  is  never,  in  any  proper 
sense,  play. 

Labor  a  Measure  of  Value. — Labor  is  always  irk- 
some, put  forth  only  for  the  sake  of  the  object  to  be  attained. 
In  any  case,  therefore,  when  desire  is  awakened  for  a  cer- 
tain object,  the  question  arises,  Is  the  gratification  worth 
the  labor  necessary  to  secure  it  ?  When  the  desire  is  strong 
enough  to  overcome  the  man's  inertia,  or  love  of  ease,  he 
will  put  forth  the  necessary  labor  and  that  labor  stands 
ever,  an  exponent  of  his  estimate  of  the  object.  Ho  will 
part  with  that  object  only  for  something  else  which  lias 
cost  at  least  an  equal  amount  of  labor.  Every  man  esti- 


20  PRODUCTION. 

mates  the  products  of  his  labor  by  the  same  rale.  Thus, 
in  all  exchanges,  for  the  comparison  of  value  or  purchasing 
power,  the  first  question  is,  how  much  labor  is  involved — 
what  is  the  cost  of  the  objects  offered  for  exchange  ?  Labor 
thus  becomes  not  the  sole  element,  but  always  a  fundamen- 
tal and  essential  element  in  the  measure  of  value. 

Kinds  of  Labor. — The  processes  of  production  give 
scope  for  the  exercise  of  all  the  faculties  of  man.  So,  re- 
solving the  compound  of  human  nature  into  its  two  constit- 
uents, body  and  mind,  we  recognize  two  kinds  of  labor. 

1.  Physical   labor  in  which  muscular  exertion  is  the 
chief  thing. 

2.  Mental  labor  which  engages  chiefly  the  faculties  of 
the  mind. 

We  say  "chief"  and  "chiefly,"  because  in  reality  all 
human  industry  combines  some  physical  and  some  mental 
effort — taxes  both  muscles  and  brain.  The  dullest  laborer 
must  give  some  thought  to  the  movement  of  his  hands  ; 
and  the  profonndest  thinker  must  task  some  of  his  muscles 
in  the  labor  of  writing  or  dictation  to  bring  before  the 
world  the  products  of  his  brain-work.  In  general,  manual 
labor  is  profitable  in  proportion  as  mental  effort  in  the 
way  of  skill  or  contrivance,  is  blended  with  it.  And  minds 
tasked  in  study  to  unfold  the  secret  constitution  of  nature, 
continually  open  the  way  for  new  industries,  and  indicate 
new  methods  for  the  multiplication  of  wealth.  These  two 
kinds  of  labor  are  very  closely  joined  in  the  active  industry 
of  the  world.  Yet  the  distinction  is  obvious  and  impor- 
tant. To  bring  it  out  more  fully,  we  need  carefully  to 
consider  : 

1..  What  Physical  Labor  does. — All  the  power 
there  is  in  tiiese  bodies  of  flesh,  comes  from  the  capacity 
of  living  muscle  to  contract  and  expand.  It  is  simply 


PHYSICAL   LABOR.  21 

power  to  produce  motion.  The  muscles  are  strung  with 
nerves  through  which  the  will  directs  their  motions.  All 
that  man  does  or  can  do  with  matter  is  by  working  his 
muscles,  to  bring  a  pressure  to  bear  on  objects  to  set  them 
in  motion,  or  to  check  or  modify,  or  altogether  arrest  their 
motion,  so  as  to  effect  a  desired  result.  Physical  labor  only 
moves  things.  But  the  power  to  do  this  gives  man  a  com- 
mand, reaching  beyond  any  definable  limit,  over  the  forces 
of  nature  which  are  the  effective  agents  of  production. 
Man  drops  a  seed  into  the  ground.  Then  the  vital  force 
hidden  in  the  seed,  quickened  by  moisture  and  heat  and 
nourished  by  chemical  elements  in  the  soil,  brings  forth 
successively,  root  and  blade  and  leaf  and  flower  and  fruit. 
Man  brings  coal  to  the  furnace  and  applies  to  it  a  spark  of 
fire.  Then  a  hidden  force  of  nature  in  the  process  of  com- 
bustion turns  the  cai'bon  into  heat.  Man  may  lay  on  the 
pile,  ore  dug  from  the  earth,  bu  t  it  is  nature's  force,  which  by 
the  action  of  heat  makes  the  iron  flow.  Man's  muscles  lift 
the  hammer,  but  nature's  forces,  gravitation  and  density 
on  the  one  hand,  and  tenacity  and  malleability  on  the 
other  make  the  blow  effective  to  shape  the  iron.  Thus, 
through  all  the  processes  of  production,  man  moves  things 
into  such  relations  that  the  forces  of  nature  can  act  to 
achieve  the  results  he  aims  at.  He  can  do  nothing  alone. 
Ordinarily,  nature  will  do  but  little  to  his  purpose  without 
his  effort  to  move  things  into  some  sort  of  adjustment  to 
her  laws.  We  are  brought  thus  to  consider  next : 

2.  What  Mental  Labor  does  directly  for  the  pro- 
d  action  of  wealth.  For  the  wisest  and  most  effective  appli- 
cation of  physical  labor  touching  material  objects  just  to 
move  them,  men  must  know  as  much  as  possible  of  the 
properties  of  matter  and  of  the  forces  of  nature  by  which 
those  properties  can  be  developed  and  modified.  Such 
knowledge  comes  through  labor  of  the  mind,  searching  out 


22  PRODUCTION. 

the  constitution  and  the  laws  of  matter.  After  this  knowl- 
edge is  gained,  human  minds  must  be  further  tasked  to 
devise  means  and  instruments  for  applying  it  in  efforts  for 
the  increase  of  wealth.  Still  further,  when  the  elements 
and  laws  of  nature  are  understood,  and  instruments  are 
made  and  adjusted  to  them,  the  mind  must  be  exercised  in 
close  attention  to  superintend  the  operations,  so  as  to  hold 
all  instruments  and  their  movements  true  to  the  principles 
of  their  construction,  and  to  the  end  aimed  at.  By  habit- 
ual exercise,  one  acquires  quickness  of  perception,  and 
readiness  and  precision  in  manipulation,  that  is  skill,  which 
is,  in  essence,  a  power  of  mind  more  than  of  muscle.  We 
define  then  three  distinct  forms  in  which  mental  labor  is 
concerned  in  the  production  of  wealth. 

1.  The  labor  of  Investigation  and  Discovery,  through 
which  the  properties  and  laws  of  nature  are  made  known. 
Newton  labored  in  this  department,  when  he  discovered 
the  laws  of  gravitation,  of  optics,  and  of  the  motions  of 
the   heavenly  bodies  ;  Franklin,  when  he  discovered  the 
laws   of  electricity  ;  and   Sir  Humphrey  Davy,  when  he 
discovered  the  alkaline  bases,  and  the  laws  of  their  combi- 
nation.    The  labor  of  each  of  these  men  was  also  of  the 
same  kind,  when  they  made  known  these  laws  to  the  pub- 
lic.    The  labor  of  students  of  science  in  all  departments, 
belongs  to  this  category. 

2.  The  labor  of  Invention,  employed  in  devising  instru- 
ments of  production  adjusted  to  the  discovered  principles 
and  properties  of  nature.     Newton  performed  this  labor 
when  he  invented  the  telescope  ;  Had  ley  when  by  means 
of  the  quadrant,  he  applied  the  laws  of  light  to  the  meas- 
uremcn't  of  angles ;  Watt  when  he  devised  an  engine  to 
control  and  utilize  the  expansive  force  of  steam  ;  Arkwright 
when   he  invented  the  spinning-jenny  ;    Morse  when,  by 
contriving  the  telegraphic  register,  he  bound  electricity  to 
do  man's  bidding,  and  Daguerre  when  he  found  a  way  to 


MENTAL  LABOR.  23 

apply  the  actinic  properties  of  light,  and  set  the  sun  him- 
self to  making  pictures  for  us.  The  mathematician  in  his 
study,  puzzling  his  brain  with  problems  of  number  and 
quantity,  lines  and  angles,  seems  far  removed  from  the 
practical  work  of  life.  Yet  the  fruit  of  his  labor  enters 
into  all  effective  machinery,  in  a  way  to  multiply  comforts 
for  men,  beyond  all  computation. 

3.  The  labor  of  skillful  Oversight  and  Superintendence. 
In  its  lowest  form,  this  is  joined  immediately  with  the  mus- 
cular action  of  physical  labor,  as  in  the  case  of  the  me- 
chanic using  simple  tools  to  work  wood  or  metal,  accord- 
ing to  its  nature,  for  a  definite  purpose.  In  higher  forms 
it  watches  and  guides  the  running  of  a  complicated  engine, 
or  presides  over  a  department  of  labor  to  combine  the  pro- 
ducts of  many  working  hands  and  minds,  or  manages  the 
business  of  a  great  manufactory,  the  observing  eye  and 
governing  will  by  which  manifold  processes  are  made  to 
coalesce  for  the  one  end  of  producing  things  that  will  grat- 
ify men's  desires.  Through  the  whole  range,  intelligence 
and  judgment  are  exercised  to  regulate  the  motions  of 
physical  labor,  by  means  of  inventions,  and  according  to 
discoveries  previously  made. 

These  three  forms  of  mental  labor  continually  run  into 
each  other,  as  Sir  Humphrey  Davy  discovered  the  nature 
of  choke-damp  in  mines,  and  invented  the  safety-lamp,  or 
as  Sir  Eichard  Arkwright,  a  thoughtful  spinner,  invented 
the  spinning  machinery  now  in  common  use.  It  is  obvious 
therefore,  that  the  wide  diffusion  of  knowledge,  and  the 
culture  of  habits  of  close  observation,  tends  directly  to  in- 
crease the  effectiveness  of  labor.  In  the  actual  progress 
of  industry,  the  order  of  these  forms  of  labor  is  commonly 
reversed.  Men  begin  with  simple  muscular  efforts. 
Thinking  mind  attending  these  efforts,  invents  means  of 
easing  labor  or  of  increasing  its  effectiveness.  The  effort 
of  invention  leads  to  the  discovery  of  properties  and  laws 


24  PltODL'CTIOX. 

which,  in  turn,  wakens  new  interest  and  leads  to  new  inven- 
tions. The  spring  of  advancing  civilization  is  thus  the 
activity  of  the  human  mind  directed  to  the  production  of 
wealth. 

Labor  indirectly  instrumental  in  Production. — Under 
this  head,  we  refer  to  that  labor,  chiefly  mental,  which  has 
to  do,  not  with  the  immediate  production  of  material 
objects,  but  with  the  general  conditions  "most  favorable  to 
successful  industry  of  whatever  kind.  Health,  intelligence, 
cheerfulness,  integrity,  social  order,  security  to  property, 
good  government,  refined  manners,  high-toned  moral  and 
religious  sentiments — all  these  are  conditions  on  which  de- 
pend, in  no  small  degree,  the  results  of  labor  for  the  actual 
production  of  wealth.  This  labor  is  applied  immediately 
to  human  beings,  to  rear  them  so  as  to  keep  up  the  supply 
of  laborers,  and  to  give  them  physical  vigor  and  spiritual 
capacity  and  energy  ;  and  also  to  human  society,  to  main- 
tain order  and  security,  and  a  tone  of  sentiment  most 
favorable  to  cheerful  toil  and  to  good-will  and  happiness 
in  all  the  associations  of  life.  To  this  class  of  labor  are 
referred  the  mothers  unwearying  care  and  effort  in  nurs- 
ing and  training  children,  the  services  of  the  physician, 
who  studies  and  applies  to  individuals  and  to  communities 
the  laws  of  health,  and  the  labors  of  the  teacher,  which  de- 
velop the  mental  poiuers  of  the  young  and  diffuse  in  a  com- 
munity intelligence  which  quickens  and  guides  all  industry. 
Here  too,  belong  the  busy  brain-work  of  the  lawyer,  who 
labors  to  define  and  maintain  rights  and  obligations  as  they 
spring  up  in  the  intercourse  of  men  with  one  another, 
under  the  rule  of  civil  law ;  and  that  of  the  minister  of 
religion  who  plies  the  truths  and  precepts  of  "the  higher 
law  "  of  God,  to  form  good  consciences  and  improve  the 
public  moral  sense  ;  and  that  also  of  legislators  and  officers 
of  government,  on  whoso  ordinances  and  administration  of 
affairs,  the  stability  of  the  whole  structure  of  society 


PRODUCTIVE  AND   UNPRODUCTIVE  LABOR.  25 

depends.  It  is  quite  obvious  that  all  these  labors,  though 
they  do  not  directly  bring  forth  material  products,  never- 
theless enter  into  the  general  productive  industry  of  a  peo- 
ple, and  are  as  essential  to  the  best  results  of  its  processes  as 
the  manual  labor  of  the  farmer  or  the  blacksmith.  The 
support  and  the  rewards  of  this  kind  of  labor  must  come 
from  the  wealth  produced.  And  it  is  wise  economy  to 
make  ample  provision  for  these  services  to  be  rendered  by 
persons  who  make  them  their  study  and  piofession. 

Labor  as  Productive  and  Unproductive. — Many  writers 
on  political  economy  make  much  of  this  distinction.  Mr. 
Mill  understands  by  "  productive  labor,  only  those  kinds 
of  exertion  which  produce  utilities  embodied  in  material 
objects,"  and  by  unproductive  labor,  that  "  which  does  not 
terminate  in  the  creation  of  material  wealth."  We  are 
however  disposed  to  discard  this  distinction  and  to  substi- 
tute for  it  that  of  labor  as  directly  or  indirectly  concerned 
in  production,  according  to  the  views  just  presented.  In 
his  own  presentation  of  the  matter,  Mill's  definition  breaks 
down  when  he  tries  to  include  in  productive  labor,  the 
labor  of  officers  of  government,  recognizing  it  to  be  "  in- 
dispensable to  the  prosperity  of  industry."  The  same  thing 
certainly  must  be  said  of  all  that  has  been  referred  to  as 
"  labor  indirectly  instrumental  in  production."  Whatever 
efforts  tend  to  improve  the  condition  of  men  for  the  work 
they  undertake,  or  to  improve  the  condition  of  society  for 
securing  to  men  the  reward  of  their  toil  and  the  healthful 
enjoyment  of  life  ought  to  be  reckoned  as  Productive  Labor. 
Then  for  the  other  side  of  the  distinction,  we  may  recog- 
nize in  every  community  a  class  of  non-producers — persons 
who  do  nothing  directly  or  indirectly  to  increase  wealth  or 
promote  the  welfare  of  mankind,  who  are  at  best  only  con- 
sumers of  the  products  of  other  men's  labors.  We  have  to 
recognize  also  a  class  of  Destructives,  persons  whose  ener- 
gies are  put  forth  to  hinder  all  productive  industry  and 
2 


28  PBODUCTIOtf. 

destroy  its  fmits.  Here  must  be  included  those  who  pan- 
der to  the  vices  that  unfit  men  for  effective  labor,  those 
who  as  thieves,  burglars,  counterfeiters  and  swindlers,  task 
muscles  and  brains,  by  force  or  knavery  to  rob  their  fellow- 
men,  and  the  whole  race  of  gamblers  and  speculators, 
whether  their  operations  be  carried  on  at  the  faro-table,  or 
the  pool-room,  or  the  board  of  trade,  or  the  stock-exchange. 
This  whole  class  not  only  add  nothing  to  the  siim  of  wealth 
produced,  but  positively  reduce  it,  by  unfitting  men  for 
useful  service  and  by  unsettling  the  basis  of  industry, 
making  its  results  uncertain. 

Changes  effected  by  Labor. — TVe  have  seen  that 
wealth  is  produced  by  the  application  of  labor  to  existing 
natural  objects.  No  human  effort  can  create  a  particle  of 
matter.  All  that  it  can  do  is  to  effect  changes  in  the  mat- 
ter to  which  it  is  applied.  For  the  production  of  wealth, 
labor  is  directed  to  develop  the  utilities  which  are  embodied 
in  the  constitution  of  material  things  so  that  they  can  be 
available  for  the  gratification  of  desire.  We  have  already 
shown  that  strictly  speaking,  labor  can  do  no  more  than  to 
move  things.  But  through  the  exertion  of  his  mental  fac- 
ulties in  discovery  and  invention  man  gains  control  of  the 
forces  of  nature,  by  or  in  accordance  with  which,  most  of 
the  desired  changes  are  wrought.  Here,  we  may  in  a  gen- 
eral way  speak  of  labor  as  working  by  and  with  the  forces 
of  nature  to  multiply  useful  things  which  can  l)e  appropria- 
ted and  exchanged,  that  is  wealth. 

Now,  the  changes  which  may  be  produced  in  the  ob- 
jects of  nature  may  all  be  reduced  to  three,  and  concisely 
stated  in  the  alliteration  of  three  significant  words,  viz. 
Transmutation  —  Transformation  —  Transporta- 
tion. 

1.  Transmutation. — Man  may  change  the  elementary 
form  of  matter.  The  farmer  by  means  of  seed,  manure 


CHANGES  EFFECTED   BY   LABOR.  27 

and  cultivation,  aided  by  the  agencies  of  the  sun  and  the 
earth,  of  rain,  and  the  atmosphere,  transforms  the  elemen- 
tary forms  of  carbon,  gases,  and  water,  into  wheat.  The 
chemist  changes  the  elementary  forms  of  acids  and  alka- 
lies into  salts.  The  dyer  changes  the  elementary  forms  of 
iron  and  tannin  into  coloring  mutter  ;  and  the  case  is  the 
same  with  various  other  forms  of  human  occupation. 

2.  Transformation. — Man  may  change  the  aggregate 
form  of  matter.     The  cabinet-maker  changes  the  form  of 
a  board  into  that  of  a  desk  or  a  table  ;  the  smith,  a  piece 
of  iron  into  a  horse-shoe  or  a  nail ;  the  mason  changes  a 
pile  of  bricks  and  mortar  into  a  wall ;  the  cotton  spinner, 
a  bale  of  cotton  into  thread  ;  the  weaver,  this  thread  into 
cloth.     And,  in  general,  the  labor  of  mechanics  and  man- 
ufacturers is  employed  in  effecting  changes  in  the  aggre- 
gate forms  of  matter. 

3.  Transportation. — Man  may  change  the  place  of 
matter.     Thus,  the  shipmaster  transports  a  cargo  of  cot- 
toii  from  New  York  to  Liverpool,  and  brings  back  a  cargo 
of  cotton  goods,  of  crockery,  or  of  hardware.     The  team- 
ster receives  a  wagon  load  of  merchandise  in  one  town  and 
transports  it  to  another.     The  owner  of  a  canal  boat  re- 
ceives manufactured  goods  in  Albany,  transports  them  to 
Buffalo,  and  brings  back  to  Albany,  in  return,  a  freight 
of  agricultural  produce.     The  agent  of  a  railroad  receives 
a  hundred  boxes  of  merchandise  in  Manchester,  and  trans- 
ports them  to  Liverpool.     And  thus,  also,  a  large  number 
of  the  inhabitants  of  every  populous  town  derive  their  sub- 
sistence, and  frequently  grow  rich,  simply  by  transporting 
wares  and  merchandise  from  one  part  of  the  town  to  another. 

These  divisions,  in  general,  correspond  with  the  agri- 
cultural, mechanical,  and  commercial  departments  of  hu- 
man industry.  We  have  adopted  a  different  terminology, 
because  it  seems  to  form  a  more  generic  and  better  limited 


28  PRODUCTION. 

division,  and  one  more  conformable  to  the  facts  in  the 
case. 

1.  Concerning  these  divisions,  it  is  proper  to  remark, 
that,  though  these  are  the  various  objects  of  human  indus- 
try, yet  it  frequently  happens  that,  he  who  labors  in  one, 
is  also  obliged  to  labor  in  one  or  both  of  the  others.     Thus, 
the  farmer  who  raises  a  crop,  is  obliged  to  transport  the 
seel  to  the  field,  and  frequently  to  transport  his  harvest  to 
market.     The  cabinet-maker  who  manufactures  a  table, 
may  transport  his  materials  from  the  lumber  yard.     The 
engineer,  on  the  railroad,  is  obliged  to  change  the  elemen- 
tary form  of  wood,  in  order  to  produce  the  caloric,  neces- 
sary to  move  his  locomotive.     We  designate  the  class  of 
laborers  to  which  a  man  belongs,  by  the  ultimate  object 
which  he  has  in  view  in  exercising  his  profession. 

2.  Each  one  of  these  forms  of  industry  is  equally  im- 
portant in  developing  the  utility  of  substances,  that  is,  in 
giving  them  capacity  to  gratify  human  desire.     Thus  we 
see  that  the  ore  in  the  mine  has  no  power  to  gratify  desire, 
until  it  is  made  into  iron  or  steel.     The  steel  is  worthless 
for  the  purpose  of  cutting,  until  it  is  transformed  into  a 
knife,  an  axe,  or  some  cutting  instrument ;  and,  if  I  want 
to  make  a  pen  in  New  York,  a  knife  is  utterly  useless  to 
me  for  this  purpose,  while  it  remains  in  Sheffield  or  Liv- 
erpool.    Unless  these  several  utilities  are  all  conferred  up- 
on it,  it  would  be  of  no  service  to  me.     Hence,  in  purchas- 
ing a  knife,  I  pay  for  them  all,  and  as  willingly  for  one  as 
the  other. 

3.  Hence  we  see  how  incorrect  is  the  notion  sometimes 
advanced,  that  all  wealth  is  the  production  of  one  or  of  two, 
and  not  of  all  these  forms  of  human  industry.     All  these 
changes  must  be  effected  in  almost  every  article  which  \ve 
consume,  and  if  either  of  them  were  to  be  suspended,  our 
desires  would  not  be  gratified,  and  the  other  two  must  also 
be  discontinued.     He  who  transports  flour,  performs  an 


CHANGES   EFFECTED   BY   LABOR.  2& 

act  of  as  essential  importance  to  the  sustentation  of  the 
human  race,  as  he  who  raises  wheat.  He  who  brings  a 
knife  from  Liverpool  to  me,  performs  a  labor  as  important 
to  me,  as  he  who  manufactures  the  knife ;  for,  if  it  were 
three  thousand  miles  off,  it  might,  for  all  the  purposes  for 
which  I  want  it,  as  well  not  be  in  existence.  And  yet 
more,  if  one  of  these  forms  of  labor  should  cease,  the  others 
must  soon  cease  with  it.  Of  what  use  would  wheat  or  wool 
be  to  the  farmer,  if  they  could  not  be  transported  from  his 
farm  ?  And  again  :  what  gain  could  be  derived  from 
either,  if  there  were  no  means  of  grinding  the  one,  or  of 
manufacturing  the  other  ?  Hence  we  see  that  all  the  forms 
of  industry  mutually  support,  and  are  supported  by,  each 
other  ;  and  hence,  also,  we  see  that  any  jealousy  between 
different  classes  of  producers,  or  any  desire  on  the  one  part, 
to  obtain  special  advantages  over  the  other,  are  unwise, 
and,  in  the  end,  self-destructive.  The  fact  is,  that  if  left 
to  themselves,  they  all  flourish,  and  they  all  suffer  together. 
Nor  can  either  one  be  depressed,  for  any  considerable 
period,  without  injuriously  affecting  both  the  others. 

These  various  forms  of  human  labor  enter,  in  different 
degrees,  into  the  value  of  different  articles  of  use.  For  in- 
stance, butchers'  meat  and  green  vegetables  derive  almost 
their  whole  value  from  the  first  kind  of  labor,  as  they  re- 
quire very  little  modification,  and  will  bear  but  short  trans- 
portation. On  the  contrary,  salted  provisions  may  derive 
a  large  portion  of  their  value  from  change  of  place.  Cloth- 
ing, cutlery,  and  what  are  commonly  denominated  manu- 
factures, derive  the  greater  portion  of  their  value  from 
change  in  the  aggregate  form.  The  original  material  con- 
stitutes, in  general,  but  a  small  part  of  their  price,  and, 
not  being  of  great  bulk,  their  transportation  is  not  very 
expensive.  The  steel  that  would  make  a  pair  of  razors, 
and  the  cost  of  transporting  them  from  Sheffield  or  Paris 
to  New  York  would  form  but  a  very  small  portion  of  their 


30  PRODUCTION. 

price.  On  the  contrary,  bulky  articles,  such  as  coal  and 
iron,  derive  a  very  large  portion  of  their  cost  from  trans- 
portation. Coal,  that  has  but  little  value  in  the  coal  mines 
of  Pennsylvania,  is  sold  for  six  or  eight  dollars  a  ton  in 
Chicago.  And  all  the  labor  employed  upon  it,  is  that 
which  is  necessary  for  breaking  it  in  pieces,  and  removing 
it  from  its  bed  to  the  house  of  the  consumer. 

As,  however,  the  human  race  is  scattered  over  the  face 
of  the  globe,  and  as  their  wants  in  all  latitudes  are  so 
nearly  the  same,  while  no  country  affords  facilities  for 
supplying  more  than  a  very  small  number  of  these 
wants,  it  is  evident  that  the  labor  employed  in  change  of 
place  must,  in  civilized  countries,  be  most  universal, 
and  must  enter  essentially  into  the  greatest  number  of 
commodities.  Of  this  every  one  will  be  convinced  who 
will  take  any  article  of  dress,  of  furniture  or  of  food,  and 
consider  the  amount  of  transportation  that  has  entered  into 
its  production  ;  and,  especially,  if  he  take  into  account  the 
transportation  which  has  entered  into  the  formation  of  the 
instruments  by  which  it  had  been  produced.  The  same 
truth  is  also  illustrated  by  the  fact,  that  whole  nations, 
with  very  small  natural  advantages,  as  Holland  and  Venice, 
have,  in  a  short  period,  become  immensely  rich,  merely  by 
conferring  change  of  place  on  the  merchandise  and  pro- 
ductions used  by  other  nations.  Water  communication,  in 
the  early  stages  of  society,  greatly  diminishes  the  cost  of 
transportation,  and,  of  course,  increases  the  facilities  of 
exchange.  It  is  on  this  account  that  the  first  settlements 
of  nations  are  always  either  on  the  shores  of  the  ocean,  or 
along  the  banks  of  navigable  rivers. 

It  may  also  be  worthy  of  remark  that,  thus  far  in  the 
progress  of  society,  the  ingenuity  of  man  has  been  more  suc- 
cessful in  devising  means  for  increasing  the  productiveness 
of  labor  in  the  second  and  third,  than  in  the  first  kind  of 
numan  industry.  Improved  agricultural  utensils,  a  better 


CH1NGES  EFFECTED  BY  LABOR.  31 

knowledge  of  the  nature  of  soils,  and  of  the  different  kindg 
of  grain  and  edible  vegetables,  and  of  manures  have  added 
considerably  to  the  quantity  of  product  that  can  be  raised 
by  a  given  amount  of  labor.  But  this  increase  is  small  in 
proportion  to  that  effected  by  the  use  of  machinery  in  the 
case  of  the  cotton  manufacturer,  and  by  the  use  of  the 
locomotive  and  many  other  forces.  It  is,  doubtless,  wisely 
ordered  that  it  should  be  so.  Agricultural  labor  is  tJie 
most  liealtliy  employment,  and  is  attended  by  the  fewest 
temptations.  It  has,  therefore,  seemed  to  be  the  will  of 
the  Creator,  that  a  large  portion  of  the  human  race  should 
always  be  thus  employed,  and  that,  whatever  effects  may 
result  from  social  improvement,  the  proportion  of  men 
required  for  tilling  the  earth  should  never  be  very  greatly 
diminished.  It  is  also  to  be  remarked,  that  division  of 
labor,  which  so  greatly  increases  the  productiveness  of 
human  industry  in  the  other  modes  of  production,  can  be 
applied  but  in  a  small  degree  to  agriculture.  No  man  can 
devote  himself  exclusively  to  ploughing,  sowing  or  reap- 
ing ;  because  only  a  small  part  of  the  year  can  be  employed 
in  either  of  these  occupations.  The  farmer,  must,  there- 
fore, practise  them  all,  at  different  times  ;  and,  of  course, 
every  farmer  must  be  able  to  perform  not  one,  but  all  the 
several  operations  required  in  his  trade.  This  forms 
another  reason  why  the  increase  of  productiveness  of 
human  industry,  in  this  department  of  labor,  has  not  kept 
pace  with  that  which  has  been  witnessed  in  manufactures 
and  commerce. 


CHAPTER    V. 

MEANS  FOR  INCREASING  THE  EFFECTIVENESS 
OF  HUMAN  LABOR. 

THE  physical  power  of  man  is  extremely  limited.  His 
strength  is  soon  exhausted.  His  limbs  and  muscles  un- 
assisted, are  insufficient  to  meet  his  simplest  wants.  He 
needs  shelter,  cooked  food,  and  clothing.  But  he  could 
not,  with  his  teeth  and  nails,  cut  down  a  tree  and  fashion 
it  into  a  cabin.  He  cannot,  by  his  hands,  either  cook  his 
food,  or  manufacture  a  fabric  suitable  for  clothing.  All 
these  can,  however,  be  done  by  other  agents  which  he  can 
command  and  control.  Thus,  iron  can  be  made  to  cut 
down  and  fashion  a  tree,  fire  to  cook  his  food,  and  a  spin- 
ning wheel  and  loom  can  be  made  to  furnish  him  with 
clothing. 

As  mankind  multiply  and  are  bound  together  in  society, 
individuals  are  found  to  differ  in  capacity.  One  has  spe- 
cial endowments  for  one  kind  of  labor,  another  for  another. 
Hence  there  naturally  springs  up  some  systematic  arrange- 
ment for  mutual  cooperation  to  increase  the  productiveness 
of  the  community,  by  assigning  to  each  the  labor  for  which 
he  is  best  fitted,  and  giving  all  something  to  do. 

Two  means  by  which  the  effectiveness  of  human  labor 
is  increased,  are  thus  indicated.  They  are  The  Use  of 
Natural  Agents,  and  The  Division  of  Labor. 

1.  Natural  Agents. — A  natural  agent,  is  any  qual- 
ity or  relation  of  things  which  can  be  used  for  the  purpose 


NATURAL  AGENTS.  33 

of  assisting  us  in  production.  Thus,  the  light  and  heat  of 
the  sun  are  natural  agents,  without  the  aid  of  which  we 
could  not  create  vegetable  products.  Caloric  or  artificial 
heat,  is  a  natural  agent,  without  which  we  could  neither 
cook  our  food,  prolong  our  lives  in  cold  climates,  give  any 
valuable  quality  to  metals,  nor  create  steam  for  the  pur- 
pose of  machinery.  Magnetism  is  a  natural  agent,  by 
which  we  are  enabled,  in  any  part  of  the  earth,  to  know  in 
what  direction  we  are  moving.  The  various  powers  and 
instincts  of  animals  are  natural  agents,  by  which  we  accom- 
plish purposes  which  could  not  be  accomplished  without 
them.  Thus,  the  farmer  avails  himself  of  the  muscular 
power  and  docility  of  the  ox  and  the  horse  ;  the  huntsman, 
of  the  fleetness  and  scent  of  the  hound,  etc.  Wind,  the 
gravitating  power  of  water,  and  steam,  are  natural  agents, 
by  which  Ave  create  the  momentum  necessary  to  various 
operations  in  the  arts. 

A  tool,  or  a  machine,  is  any  combination  of  matter,  by 
means  of  which  we  are  enabled  to  avail  ourselves  of  the 
qualities  or  relations  of  a  natural  agent.  Thus,  a  lens 
or  burning  glass,  is  a  tool,  by  means  of  which  we  concen- 
trate, for  useful  purposes,  the  rays  of  the  sun. 

A  stove,  or  a  fire  place,  is  an  instrument,  or  tool,  by 
which  we  avail  ourselves  of  the  calorific  properties  of  fuel. 

A  mariner's  compass  is  a  tool,  by  which  we  avail  our- 
selves of  the  peculiar  quality  of  the  magnetic  needle. 

A  water  wheel  is  a  tool,  by  means  of  which  we  avail 
ourselves  of  the  gravitating  power  of  water. 

A  steam  engine  is  a  tool,  by  means  of  which  we  avail 
ourselves  of  the  expansive  power  of  steam. 

The  only  difference  between  a  tool  and  a  machine  is, 
that  the  one  is  more  complicated  than  the  other.  A  com- 
mon hammer  is  a  tool,  by  means  of  which  we  avail  our- 
selves of  the  gravity  and  density  of  iron,  and  of  the  power 
of  the  lever.  A  trip-hammer,  by  which  large  masses  of 
2* 


34  PRODUCTION". 

iron  are  fashioned  and  wrought,  is  called  a  machine,  but 
the  principles  employed  are,  in  both  cases,  the  same,  only 
the  trip-hammer  is  moved  by  a  natural  agent,  water,  or 
steam,  while  the  common  hammer  is  moved  by  the  hand. 

The  qualities  and  relations  of  natural  agents  are  the  gift 
of  God,  and,  being  His  gift,  they  cost  us  nothing.  Thus, 
in  order  to  avail  ourselves  of  the  momentum  produced  by 
a  water-fall,  we  have  only  to  construct  the  water-wheel  and 
its  necessary  appendages,  and  place  them  in  a  proper  posi- 
tion. We  then  have  the  use  of  the  falling  water,  without 
further  expense.  As,  therefore,  our  only  outlay  is  the  cost 
of  the  instrument  by  which  the  natural  agent  is  rendered 
available,  this  is  the  only  expenditure  which  demands  the 
attention  of  the  political  economist. 

If  we  reflect  upon  the  various  natural  agents  employed 
by  man,  we  shall  see  that  some  of  them  can  be  used  with- 
out any  tools  whatever.  Such  is  the  case  in  agricultural 
labor,  with  air,  and  the  light  of  the  sun.  Others  require 
only  so  simple  instruments,  that  their  effect  upon  price  is 
not  appreciable.  Thus,  a  mariner's  compass,  which  would 
last  for  twenty  years,  and  assist  in  the  transportation  of 
half  as  many  millions'  value  of  merchandise,  would  cost 
but  a  few  dollars.  Others  are  used  by  few  persons,  and 
for  particular  and  unusual  purposes,  as  the  lens,  or  the  mi- 
croscope. It  is  only  those  agents  which  require  for  their 
employment,  machinery  of  which  the  cost  is  appreciable, 
and  which  are  of  so  general  necessity,  that  their  use  enters 
into  consideration  in  estimating  the  expenses  of  produc- 
tion, that  require  to  be  specially  noticed  in  Political 
Economy. 

The  means  most  universally  required  for  creating 
change,  is  momentum,  or,  as  it  is  commonly  called,  power. 
Without  this,  in  agriculture,  no  change  in  elementary 
form,  and,  in  mechanics,  no  change  in  aggregate  form,  and 
in  transportation,  no  change  in  place,  can  be  effected. 


NATURAL  AGENTS.  35 

The  natural  agents  connected  with  the  use  of  momen- 
tum, may  be  divided  into  two  classes  : 

1.  Those  which  create  momentum. 

2.  Those  which  direct  it. 

1.  Of  those  -which  create  Momentum,  we  have 
two  kinds  :  Animate,  and  Inanimate. 

1.  Animate.  These  are,  beasts  of  draft  and  burden, 
generally.  The  most  common  of  these  are,  the  ox,  the 
horse,  and  the  mule  ;  others  in  use  in  particular  districts, 
are  the  camel,  the  elephant,  the  dog  and  the  reindeer. 

The  subjection  of  animals  to  the  human  will,  marks  an 
era  in  the  progress  of  civilization  ;  and  teaches  us  that  the 
first  important  step  has  been  taken  in  the  improvement  of 
the  condition  of  man,  and  of  the  productiveness  of  human 
industry.  The  ox  and  the  horse  have  much  greater  physi- 
cal power  than  man.  They  may  also  be  sustained  at  a 
much  less  expense.  Their  food  is  the  spontaneous  produc- 
tion of  the  earth,  which,  for  a  large  part  of  the  year,  they 
gather  for  themselves,  and  which  requires  no  labor  of 
preparation.  They  need  no  clothing  in  any  latitude,  and 
in  the  warmer  parts  of  the  temperate  zone,  need  no  shel- 
ter. But,  in  consequence  of  his  superiority  in  intellectual 
endowment,  man  can  direct  and  govern  the  physical  power 
of  several  of  these  animals,  and,  by  attaching  them  to  agri- 
cultural machines,  can  command  that  power  at  his  will. 
If,  then,  by  the  use  of  animals,  one  man  can  wield  a  physi- 
cal force  equal  to  that  of  ten  men,  he  will  be  able  to  pro- 
duce, by  the  labor  of  a  day,  ten  times  as  much  as  he  could 
before  the  introduction  of  animate  agents.  He  will,  there- 
fore, by  the  same  amount  of  labor,  produce  ten  times  as 
large  an  amount  of  objects  of  desire  ;  that  is,  of  means  of 
human  happiness. 

In  the  earliest  stages  of  society,  animate  power  must  be 
used  for  the  production  of  momentum,  in  all  the  three  de- 


36  PRODUCTION". 

partments  of  human  industry.  In  the  labors  of  agricul- 
ture, it  is  still  employed,  and  must  probably  be  thus  em- 
ployed forever.  Nothing  has  yet  superseded  it,  and  there 
is  reason  to  doubt  whether  any  thing  ever  will  to  any  great 
extent  supersede  it.  The  improvements  that  have  been 
made  by  the  introduction  of  other  creative  forces,  have  for 
the  most  part,  been  connected  with  the  other  modes  of 
operative  industry. 

2.  Of  Inanimate  Natural  Agents.  The  inanimate 
agents,  most  commonly  in  use,  are  :  The  explosive  force 
of  Gunpowder,  Dynamite,  etc.  ;  Wind ;  The  gravitating 
power  of  Water  ;  and  The  expansive  power  of  Steam. 

1.  Gunpowder  is  used  in  the  blasting  of  rocks,  in  hunt- 
ing, and  in  war.  Its  value,  in  the  blasting  of  rocks,  is  very 
considerable.  By  drilling  a  small  hole,  which  may  be  done 
by  one  man  in  a  day,  and  by  the  use  of  a  few  ounces  of  gun- 
powder, a  force  may  be  exerted,  in  an  instant,  producing 
an  effect  which  twenty  men,  for  several  days,  could  not 
otherwise  have  exerted.  Hence,  it  is  of  very  great  use  in 
all  works  of  internal  improvement,  where  rocks  must  be 
removed,  in  order  to  admit  the  passage  of  railroads  and 
canals.  In  fact,  it  is  doubtful  whether  many  of  the  most 
important  of  these  works  could  ever  have  been  executed, 
but  for  this  agent.  Others,  if  the  execution  of  them  were 
possible,  must  have  been  accomplished  at  so  great  an  ex- 
pense, that  the  investment  of  capital  in  them  would  not 
have  been  profitable,  and,  of  course,  it  would  not  have  been 
made.  Nitro-glycerine,  a  recent  invention,  has  greater  ex- 
plosive force  than  gunpowder  and  in  the  form  of  dynamite 
and  other  preparations  is  now  commonly  substituted  for  it 
in  heavy  blasting. 

Gunpowder  is  also  used  extensively  in  war.  If  war  be 
beneficial,  or  even  necessary,  gunpowder  is  an  agent  of  the 
utmost  importance  ;  for,  by  no  other  means  yet  discovered, 
is  it  possible  to  destroy  so  many  men  with  so  little  physi- 


NATURAL  AGENTS.  37 

cal  suffering,  and  with  so  little  personal  labor.  It  has  also 
a  moral  advantage  over  other  methods  of  slaughter,  inas- 
much as  the  destruction  of  human  life,  in  this  manner, 
excites  less  sensibly  the  ferocity  of  the  human  heart.  On 
this  account,  wars,  since  its  introduction,  have  been  con- 
ducted on  more  humane  principles  than  formerly.  It  has 
also  been  a  valuable  auxiliary  to  the  progress  of  civilization, 
since  it  has  conferred  on  civilized,  an  undisputed  mastery 
over  uncivilized  nations.  There  has  not  been,  for  centuries, 
any  danger  to  Christendom  from  barbarian  invasion.  Be- 
sides, the  more  energetic  are  the  means  of  destruction  in 
war,  the  less  is  the  loss  of  life  in  battle.  Hence,  of  a  given 
number  of  combatants  in  an  engagement,  a  much  smaller 
proportion  is  now  slain  than  formerly.  This  might  almost 
give  rise  to  the  paradoxical  hope,  that  some  means  of  de- 
struction might  yet  be  invented,  so  overwhelming  in  its 
effects,  as  to  put  the  smallest  number  of  men  on  a  level 
with  the  greatest,  and  hence  to  put  an  end  to  wars  al- 
together. 

2.  Wind  is  another  agent  used  for  the  creation  of  mo- 
mentum. As  a  stationary  agent  it  is  an  important  me- 
chanical power,  in  countries  destitute  of  water  power,  or 
of  the  fuel  necessary  for  the  production  of  steam,  or  of  the 
capital  which  must  be  invested  in  the  machinery  required 
in  the  use  of  more  expensive  agents.  Its  principal  advan- 
tage is  its  cheapness.  It  costs  nothing  to  create  it,  and  the 
machinery,  by  which  it  is  applied,  is  simple,  and  easily 
constructed. 

The  disadvantages  of  wind  are  its  uncertainty,  both  in 
quantity  and  in  time,  and  the  difficulty  with  which  it  is 
regulated.  In  consequence  of  the  irregularity  of  its  force, 
it  is  impossible  to  employ  it  in  labor  requiring  delicacy  of 
operation  :  and,  in  consequence  of  its  uncertainty  in  time, 
it  could  not  be  employed  where  the  labor  of  many  persons 
was  dependent  on  its  assistance. 


38  PRODUCTION. 

As  a  locomotive  power  on  water,  wind  was  until  recently 
almost  universally  used  in  navigation.  Though  the  direc- 
tion in  which  it  acts  is  variable,  yet  nautical  skill  enables 
us  to  use  it  when  blowing  from  almost  any  point  whatever. 
Its  variation,  in  the  quantity  of  force,  is  here  also  a  matter 
of  less  consequence,  since  this  circumstance  can  affect  the 
operation  to  be  performed  only  in  respect  to  time.  And 
variation,  even  in  this  respect,  has  in  a  great  degree  yielded 
to  science  and  enterprise.  It  is  astonishing  to  observe  with 
what  precision  and  certainty  voyages  were  made  by  sail 
between  New  York  and  Liverpool.  But  with  the  inven- 
tions of  Fulton  a  new  era  commenced.  Steam  very  soon 
was  employed  in  the  place  of  wind  in  the  navigation  of 
rivers  and  along  the  seaboard.  It  was  not,  however,  until 
the  year  183?  that  the  experiment  was  successfully  made, 
of  establishing  a  regular  communication  between  Europe 
and  America  by  means  of  steam.  In  May  of  that  year,  the 
steamers  Sirius  and  Great  Western,  the  former  from  Liver- 
pool, the  latter  from  Bristol,  arrived  in  New  York.  Since 
that  time  passages  have  continued  to  be  made  between  the 
above  ports  with  great  regularity,  and  thus  far  with  few 
disasters.  It  is  demonstrated  that  the  navigation  of  the 
Atlantic,  by  steam,  is  as  perfectly  within  the  power  of  man, 
as  the  navigation  of  the  Thames  or  the  Hudson. 

3.  The  gravitating  power  of  Water  is  another  agent  em- 
ployed for  the  creation  of  momentum.  This  is  used  only 
as  a  stationary  agent.  Its  advantages  are  that  it  is  cheap, 
tolerably  constant,  and  frequently  is  capable  of  exerting 
great  mechanical  force.  Its  disadvantages  are,  that  it  is 
stationary  ;  that  is,  that  it  can  be  used  only  in  situations 
where  it  has  been  created  by  nature.  Hence,  it  is  fre- 
quently at  a  considerable  distance  from  the  seaports  whence 
the  manufacturer  derives  his  supplies,  and  whence  he  ex- 
ports his  products.  In  such  cases,  the  cost  of  transporta- 
tion must  be  deducted  from  the  profits  of  the  establish- 


INANIMATE  AGENTS.  3£ 

ment,  and  is  of  course,  to  this  amount,  a  diminution  of 
the  profits. 

Water  cannot  always  be  commanded  in  sufficient  quan- 
tity. Very  few  mill-seats  are  secure  from  the  liability  to 
suffer  from  the  want  of  water.  This  is  a  great  inconveni- 
ence, inasmuch  as,  in  seasons  of  drought,  a  large  number 
of  the  laborers  must  be  unemployed,  and  a  large  portion 
of  the  expenses  of  the  establishment  must  be  incurred, 
without  yielding  any  remuneration  to  the  proprietor. 

Another  disadvantage  of  water  power  is,  that  it  is  lia- 
ble to  danger  from  inundation.  Though  this  may  be 
guarded  against  in  many  cases,  yet  it  frequently  can  be 
done  only  at  an  expense  which  greatly  reduces  the  cheap- 
pess  of  the  agent.  Notwithstanding  these  disadvantages, 
water  power  will  probably  be  always  used,  where  great 
mechanical  force  is  required  ;  where  the  machinery  to  be 
employed  is  simple,  and  where  the  operation  does  not  re- 
quire the  greatest  possible  nicety  of  execution.  Eecent 
inventions,  however,  have  greatly  improved  the  steadiness 
of  this  power  and  men's  control  of  its  action. 

4.  Steam  is  the  power,  however,  most  commonly  in 
use  at  present.  Its  advantages  are,  that  it  can  be  used  to 
create  any  required  degree  of  mechanical  force  ;  that  it  is 
perfectly  under  human  control  ;  that  it  may  be  created  in 
any  place  where  fuel  can  be  obtained  ;  that  it  can  be  used 
at  will,  either  as  a  stationary,  or  a  locomotive  power  ;  and 
that  it  can  be  made  to  act  with  perfect  regularity.  Its 
only  disadvantage  is  its  expensiveness.  The  machinery  by 
which  it  is  generated  is  costly,  and  requires  frequent 
repairs  ;  and  the  fuel,  by  which  it  is  maintained,  is  a  very 
serious  item  of  consumption.  The  price  of  engines,  how- 
ever, has  been  much  reduced,  as  the  demand  for  them  has 
increased.  And  by  improvement  in  their  construction, 
the  consumption  of  fuel  has  been  greatly  diminished, 
while  increased  facilities  for  transportation  have  mate- 


40  PRODUCTION". 

rially  reduced  its  price.  The  introduction  of  steam 
power  greatly  reduced  the  price  of  fuel  in  Great  Britain, 
until  the  rapid  consumption  threatened  to  exhaust  her 
stores. 

The  question  whether  steam  or  water  power  should  be 
used  in  any  particular  case,  is  commonly  to  be  decided  by 
their  relative  expensiveness.  This  will  be  decided,  princi- 
pally, by  the  place  in  which  the  power  may  be  required. 
Water  power  will  generally  be  the  cheaper  where  it  can  be 
procured  in  abundance,  and  sufficiently  near  to  a  market 
or  to  tide  water.  But  where  it  is  variable  in  quantity,  or 
is  at  a  considerable  distance  from  the  place  of  delivery,  the 
cost  of  transportation  will  frequently  overbalance  its  other 
advantages,  and  render  steam  power  the  more  economical. 
Machinery,  propelled  by  steam,  can  be  erected  and  carried 
on  upon  a  wharf,  or  in  the  midst  of  a  city  ;  and  hence  it 
avoids  all  the  cost  of  unnecessary  transportation.  Ma- 
chinery propelled  by  water  power  can  be  erected  only  at 
the  place  where  the  water  power  exists,  and  of  course,  is 
subject  to  all  the  expense  of  transportation  between  that 
place  and  the  market. 

The  ADVANTAGES  of  inanimate  over  animate  natural 
agents,  are  several. 

1.  Inanimate  agents  can,  within  a  small  compass,  and 
with  comparatively  little  weight,  produce  a  vastly  greater 
amount  of  momentum,  than  animate  agents.  Thus,  a 
steam  engine,  of  one  hundred  and  fifty  or  two  hundred 
horse  power,  occupies  but  a  small  space,  and  forms  but  a 
email  part  of  the  cargo  of  a  vessel.  But  so  great  a  num- 
ber of  horses  could  scarcely  be  carried  in  any  vessel  de- 
signed to  transport  either  freight  or  passengers ;  and 
besides,  no  mechanical  arrangement  has  yet  been  devised, 
by  which  such  a  number  of  animals  could  conveniently  be 
employed  upon  one  operation. 


ANIMATE  AND  INANIMATE  AGENTS.  41 

2.  They  arc  continuous  ;  that  is,  they  are  never  liable 
to  fatigue,  and  never  need  rest.     Animals  must  spend  the 
greater  part  of  their  time  in  feeding  or  in  repose.     Espe- 
cially is  this  the  case,  if  they  are  worked  rapidly.     During 
this  time,  the  labor  which  they  perform  must  either  be 
suspended,  or  else  other  animals  must  take  their  place. 
A  horse  cannot  labor  severely  for  more  than  eight  hours  in 
twenty-four.     Hence,  if  the  uninterrupted  labor  of  horses 
were  required  for  twenty-four  hours,  three  relays  must  be 
provided.     Thus,  if  a  boat  were   required  to  perform  a 
voyage  in  twenty-four  hours,  she  must  employ  three  relays 
of  horses  ;  that  is,  a  steamboat,  worked  by  a  power  equal 
to  that  of  one  hundred  and  fifty  horses,  would  require  four 
hundred  and  fifty  horses,  in  order  to  create  the  necessary 
momentum. 

3.  Hence,  there  is  a  great  gain  in  Economy.     The  first 
cost  of  inanimate  is  generally  less  than  that  of  animate 
agents  ;  they  are  liable  to  no  diseases  ;  they  require  no 
food  ;  and  create  expense  only  while  they  are  performing 
their  work.     Were  the  labor  now  performed  by  steam,  to 
be  performed  by  horses,  the  price  of  the  ordinary  necessa- 
ries of  life  would  be  quadrupled,  and  many  articles  of  ordi- 
nary use  would  be  placed  out  of  the  reach  of  any  but  the 
most  opulent.     Nor  is  this  all.     The  substitution  of  inani- 
mate for  animate  power  has  a  great  tendency  to  reduce  the 
cost  or  to  increase  the  supply  of  all  agricultural  products. 
Suppose  that,  by  the  use  of  steam,  one  thousand  horses 
can  be  dispensed  with.     A  horse  requires  for  sustenance, 
throughout  the   year,   as   much   agricultural   produce   as 
would  support  eight  men.     If,  then,  these  one  thousand 
horses  can  be  dispensed  with,  there  may  be  produced,  on 
the  land  which  was  formerly  employed  for  the  production 
of  hay,  as  much  wheat  as  will  support  eight  thousand  men. 
This  must,  at  first,  reduce  the  price  of  wheat ;  and  the 


4:2  PRODUCTION. 

result  would  be,  that  the  district  would  support  eight  thou- 
sand more  men  than  before.* 

4.  There  is  also,  commonly,  a  gain  in  personal  safety. 
Inanimate  agents  act  under  laws  which  may  be  known  and 
obeyed,  and  of  which  the  results  may  be  commonly  foreseen 
and  guarded  against.     Animals  are  endowed  with  passions 
and  will,  which  we  can  frequently  neither  control  nor  in- 
fluence.    Besides,  the  greater  expensiveness  of  the  individ- 
ual machines  employed  in  the  use  of  inanimate  agents, 
renders  it  for  the  interest  of  the  proprietor  to  employ  men 
of  experience  and  responsibility  to  manage  them.     This 
very  sensibly  diminishes  the  risk.     When  we  reflect  upon 
the  vast  amount  of  travelling  by  steamboats  and  railroads, 
it  must  be  evident  that,  notwithstanding  the  accidents  to 
which  they  are  liable,  a  vastly  greater  amount  of  human 
life  would  be  sacrificed,  if  the  same  number  of  persons 
were  transported  by  horses. 

5.  Inanimate  agents  can  be  used  without  the  infliction 
of  pain.     Inanimate  agents  are  insensible.     Where  the 
labor  to  be  accomplished  is  either  severe,  or  where  it 
requires  great  speed,  animals  must  be  rapidly  destroyed. 
This  exposes  them  to  great  suffering.     A  horse  in  a  stage 
coach  can  rarely  travel  rapidly,  more  than  ten  miles  a  day  ; 
and  most  horses  will  endure  even  this  labor  but  for  a  short 
time.     From  this  suffering,  inanimate  power  is  exempt. 
It  never  endures  pain  from  being  over  driven. 

6.  Animate  power  decreases  with  velocity.     Hence,  we 
must  soon  arrive  at  a  point  beyond  which  it  can  HO  further 
be  used  to  create  momentum.     If  we  represent  the  trac- 
tive force  of  a  horse,  when  moving  at  two  miles  an  hour, 
at  one  hundred,  his  force  at  the  rate  of  three  miles,  will  be 

*  These  statements  are  allowed  to  stand  as  written  by  Dr. 
Wayland.  But  experience  has  shown  that  the  use  of  steam  has,  by 
the  stimulus  given  to  industry,  caused  an  increase  rather  *han  a  dim- 
inution of  the  number  of  horses  kept.  C. 


AGENTS  FOR  DIRECTING   MOMENTUM.  43 

eighty-one  ;  at  the  rate  of  four  miles,  sixty-four ;  at  the 
rate  of  five  miles,  forty-nine ;  at  the  rate  of  six  miles, 
thirty-six ;  while  at  the  top  of  his  speed,  he  can  carry 
nothing  more  than  his  own  weight.  An  engine,  on  the 
contrary,  may  be  made  to  work  within  certain  limits,  as 
powerfully  at  one  degree  of  velocity  as  at  another.  la  all 
cases,  therefore,  in  which  both  great  power  and  great 
velocity  are  required,  inanimate  power  must,  of  necessity, 
be  employed. 

From  these  causes,  we  see  that  inanimate  is  rapidly  tak- 
ing the  place  of  animate  power,  both  where  stationary  and 
where  locomotive  force  is  required.  By  the  additional 
speed  which  it  is  capable  of  producing,  it  gives  rise  to  great 
economy  of  time.  This,  to  all  persons  engaged  in  active 
employments,  is  a  consideration  of  vast  moment.  Being  a 
continuous  agent,  it  is  also  enabled  to  act  with  the  great- 
est certainty.  Hence,  men  may  adjust  their  transactions, 
in  different  places,  with  entire  precision.  This  is  also 
another  source  of  economy,  both  of  time  and  of  capital. 
And,  besides,  notwithstanding  the  expensiveness  of  the  ar- 
rangements for  the  use  of  locomotive  forces,  the  amount 
of  additional  travelling  to  which  they  give  rise,  is  so  great 
that  the  expensiveness  of  transportation  between  different 
places  is,  in  general,  materially  diminished. 

Of  the  Natural  Agents  by  -which  Momentum 
is  directed  and  applied. — It  is  obvious  that  a  great 
addition  "is  made  to  human  power,  where  the  agents  for 
creating  momentum  have  been  discovered.  But  this  is  not 
all.  Several  combinations  of  matter  may  be  formed,  by 
which  mere  human  force  may  be  greatly  assisted,  and 
which,  by  being  united  with  the  agents  for  creating  mo- 
mentum, may  greatly  increase  and  vary  and  give  adapta- 
tion to  its  utility.  These  are  called  Mechanical  powers, 
which  are  treated  of  at  large  in  works  on  Mechanics  aiid 


44  PRODUCTION". 

Natural  Philosophy.  In  their  simple  form,  they  are  the 
lever,  the  wheel  and  axle,  the  inclined  plane,  the  screw,  the 
pulley,  and  the  wedge.  They  are  variously  combined  for 
producing  the  different  results  of  mechanics,  but  may  be 
all  reduced  to  these  simple  elements. 

By  means  of  these,  the  muscular  power  of  man  is  en- 
abled greatly  to  increase  its  effect ;  that  is,  a  man  by  his 
own  strength  can  now  accomplish  labor  which  he  could  not 
accomplish  without  them.  Though  these  instruments  give 
no  new  strength,  yet  they  greatly  increase  the  effectiveness 
of  that  which  already  exists  ;  and  hence,  their  invention 
marks  an  important  era  in  the  progress  of  civilization.  It 
is  also  to  be  remarked  that  their  origin,  in  point  of  time, 
is  far  in  advance  of  the  discovery  of  the  creative  agents. 
Archimedes  had  made  great  progress  in  the  discovery  and 
application  of  these  modifying  powers  when  the  use  of  crea- 
tive agents  was  almost  unknown. 

The  triumph  of  human  skill  is,  however,  achieved  when 
these  two  forms  of  natural  agency  are  combined  in  a  single 
machine.  By  the  one  we  generate  power  to  what  extent 
soever  we  choose  ;  and  by  the  other  we  modify  it  in  any 
form,  give  to  it  any  application,  arid  direct  it  to  any  pur- 
pose that  our  convenience  may  require.  It  is  in  this  man- 
ner that  man  renders  all  the  various  powers  of  nature 
tributary  to  himself.  He  can  thus  create  and  use  as  he 
pleases  as  great  a  power  as  he  desires.  He  devolves  the 
labor  on  nature,  and  he  has  only  to  fabricate  the  instru- 
ments and  give  them  their  direction.  He  is  successful  just 
in  proportion  as  he  does  this  ;  since  nature  always  works 
with  undeviating  accuracy,  with  unerring  skill,  with  inde- 
fatigable perseverance  ;  and  she  always  works  for  nothing. 

It  may  be  useful  to  specify  some  of  the  results  accom- 
plished by  the  various  instruments  which  man  employs  for 
modifying  that  momentum  which  is  exerted  by  the  first 
class  of  natural  agents. 


AGENTS  FOR   DIRECTING   MOMENTUM.  45 

1.  We  are  thus  enabled  to  change  the  direction  of  the 
power.     Thus,  in  the  cylinder  of  the  steam  engine,  the 
momentum  is  created  either  in  perpendicular  or  horizontal 
strokes.     This,  being  by  means  of  an  arm  and  a  crank 
changed  into  a  circular  motion,  moves  the  paddle-wheels 
of  a  steamboat.     Thus,  also,  in  the  machinery  for  moving 
a  trip-hammer,  a  circular  is  changed  into  a  perpendicular 
motion,  by  the  striking  of  the  cogs  of  a  wheel  upon  the 
short  arm  of  the  lever,  while  the  hammer  is  attached  to  the 
other  arm. 

2.  We  exchange  power  for  velocity.     This  is  done  in  all 
spinning  machinery.     By  water  or  by  steam,  we  cause  a 
large  wheel  to  revolve  ten,   twenty,   or  thirty  times  in  a 
minute,  and  with  a  power  equal  to  that  which  could  be 
produced  by  fifty  or  one  hundred   horses.     In  spinning, 
however,  we  need  small  power  but  great  velocity.     Hence, 
by  the  combination  of  various  large  and  small  wheels  we 
produce  a  velocity,  in  a  thousand  spindles,  equal  to  many 
thousand  revolutions  in  a  minute.     The  whole  of  this  fifty 
or  one  hundred  horse  power  is  thus  spread  over  a  large 
manufactory,  and  adapted  by  various  contrivances  to  every 
degree  of  velocity  and  every  form  of  motion  that  may  be 
required. 

3.  We  are  thus  enabled  to  exert  forces  too  great  for 
animate  power.     By  water  power  or  by  steam  we  can  gen- 
erate as  great  a  force  as  we  please  ;  and  we  have  only  to 
combine  with  it  the  proper  adjustments,  in  order  to  exert 
upon  any  point  any  momentum  which  we  desire.     The 
power  required  to  roll  and  hammer  iron  or  copper,  to  pro- 
pel steamboats,  to  forge  anchors,  and  that  used  in  several 
other  of  the  arts,  is  greater  than  could  be  exerted  by  any 
animate  force  with  which  we  are  acquainted,  unless  it  were 
exerted  by  means  of  some  combination  of  the  mechanical 
forces. 

4.  We  are  thus  also  enabled  to  execute  operations  too 
delicate  for  human  touch.     Very  delicate  operations  soon 


46  PRODUCTION. 

weary  the  nervous  system  by  the  excessive  attention  which 
they  of  necessity  require.  Thus,  in  order  to  spin  the  finest 
thread  on  a  spinning  wheel  there  must  be  great  accuracy, 
both  in  the  velocity  of  the  wheel  and  in  the  muscular  power 
exerted  in  drawing  out  the  thread.  This  requires  an  effort 
of  attention  which  the  human  system  cannot  long  maintain, 
and  of  course,  the  thread  will  frequently  be  uneven.  But 
by  means  of  machinery  both  of  these  operations  may  be  ad- 
justed with  mathematical  accuracy  ;  and  as  machines  have 
no  nerves,  they  Avill  be  perfectly  faithful  to  that  adjustment. 
Hence  machinery  is  necessarily  used  in  the  manufacture  of 
such  articles  as  require  for  their  formation  identity  of  re- 
sult, such  as  screws,  types,  etc.  Nevertheless  it  is  a  singu- 
lar fact  that  no  fabrics  have  yet  been  produced  by  machin- 
ery equal  to  the  Belgian  lace  or  the  India  shawls  wrought 
by  hand.  Careful  training  and  hereditary  knack,  cultivated 
through  many  generations,  enable  human  nerves  and  mus- 
cles to  bring  forth  the  most  delicate  and  perfect  products  of 
labor  and  skill,  though  at  an  immense  expenditure  of  labor. 

5.  By  means  of  machinery,  we  are  enabled  to  accumu- 
late poiver.     We  thus  exchange  a   continuous   and  small 
force  for  a  sudden  and  violent  one.     Such  is  the  case  with 
the  pile-driver,  and  the  common  beetle  or  mallet,  when 
used  in  combination  with  the  wedge. 

6.  By  the  same  means  we  are  enabled  to  exchange  a 
short  and  irregular  effort  for  a  continuous  and  regular  move- 
ment, or  to  spread  the  action  of  a  short,  over  a  long  period 
of  time.     This  is  done  in  clocks,  watches,  and  other  similar 
machinery.     Here  we  spread  the  action  of  a  minute  over  a 
day,  or  a  week,  and  with  almost  mathematical  accuracy. 

In  consequence  of  the  above  mentioned  application  of 
machinery,  various  other  advantages  are  realized  in  pro- 
duction. For  instance  ;  there  is  frequently  a  great  saving 
of  material,  as  in  the  change  from  making  boards  with  the 
adze,  to  that  of  making  them  with  the  saw  ;  and  again  the 
labor  of  natural  agents  is  so  much  cheaper,  that  many  arti- 


AGENTS   FOR   DIRECTING    MOMENTUM.  4? 

cles,  which  would  otherwise  have  been  worthless,  are  now 
deserving  of  attention,  as  they  may  now  be  profitably  en- 
dowed with  some  form  of  value. 

We  append  to  these  remarks  upon  the  use  of  natural 
agents  an  extract  very  graphically  describing  the  power 
of  the  steam  engine,  which  has  commonly  been  ascribed  to 
Lord  Jeffrey,  of  Edinburgh  : 

"It  (the  steam  engine)  has  become  a  thing,  stupendous  alike 
for  its  force  and  its  flexibility  ;  for  the  prodigious  power  which  it 
can  exert  ;  and  the  ease,  precision,  and  ductility  with  which  it 
can  be  varied,  distributed,  and  applied.  The  trunk  of  an  ele- 
phant, that  can  pick  up  a  pin  or  rend  an  oak,  is  as  nothing  to  it. 
It  can  engrave  a  seal,  and  crush  masses  of  obdurate  metal  before 
it  ;  draw  out,  without  breaking,  a  thread  as  fine  as  a  gossamer  ; 
and  lift  up  a  ship  of  war,  like  a  bauble  in  the  air.  It  can  embroi- 
der muslin,  and  forge  anchors  ;  cut  steel  into  ribbons,  and  impel 
loaded  vessels  against  the  fury  of  the  winds  and  waves. 

"It  would  be  difficult  to  estimate  the  value  of  the  benefits 
which  these  inventions  have  conferred  upon  the  country.  There 
is  no  branch  of  industry  that  has  not  been  indebted  to  them,  and 
in  all  the  most  material,  they  have  net  O7/iy  widened  most  mag- 
nificently the  field  of  its  exertions,  but  multiplied,  a  thousand 
fold,  the  amount  of  its  productions.  It  is  our  improved  steam 
engine,  that  has  fought  the  battles  of  Europe,  and  exalted  and 
sustained,  through  the  late  tremendous  contest,  the  political  great- 
ness of  our  land.  It  is  the  same  great  power,  which  enables  us  to 
pay  our  national  debt,  and  to  maintain  the  arduous  struggle  in 
which  we  are  still  engaged,  with  the  skill  and  capital  of  countries 
less  oppressed  with  taxation. 

"But  these  are  poor  and  narrow  views  of  its  importance.  It 
has  increased,  indefinitely,  the  mass  of  human  comforts  and  enjoy- 
ments, and  rendered  cheap  and  accessible,  all  over  the  world,  the 
materials  of  wealth  and  prosperity.  It  has  armed  the  feeble  hand 
of  man,  in  short,  with  a  power  to  which  no  limits  can  be  assigned  ; 
completed  the  dominion  of  mind  over  the  most  refractory  quali- 
ties of  matter  ;  and  laid  a  sure  foundation  for  all  those  future 
miracles  of  mechanical  power,  which  are  to  aid  and  reward  the 
labors  of  after  generations." 


CHAPTER  VI. 

DIVISION  OF  LABOR. 

THE  effectiveness  of  labor  is  increased  by  systematizing 
its  operations.  The  principle  is  that  different  kinds  of 
labor  be  distributed  to  different  classes  and  individuals,  so 
that  each  shall  do  that  for  which  he  is  best  fitted. 

The  principle  comes  out  of  that  order  of  nature  which 
has  given  to  certain  regions  of  the  earth  peculiar  adapta- 
tions for  certain  productions  and  to  certain  individuals  pe- 
culiar endowments  for  certain  kinds  of  work  ;  and  also 
from  providential  circumstances  which  have  directed  the 
efforts  of  different  nations  and  classes  and  individuals,  to 
specific  forms  of  production. 

It  is  illustrated  on  a  broad  scale,  in  the  different  indus- 
tries of  different  nations,  adapted  to  their  respective  advan- 
tages. It  thus  gives  rise  to  the  wide  commerce  of  the 
world.  It  is  illustrated  also  in  all  civilized  communities, 
in  the  distribution  of  the  various  forms  of  service,  trades 
and  professions  to  different  people,  according  to  their  seve- 
ral capacities,  tastes  and  circumstances.  It  thus  gives  rise 
to  the  multifarious  exchange  of  values  in  detail,  which 
passes  objects  of  desire  from  producers  to  consumers,  and 
constitutes  so  large  a  part  of  the  business  of  every  civilized 
community.  It  is  manifest  that  the  results  of  productive 
labor  are  botli  increased  and  improved  when  the  farmer 
and  the  baker,  the  blacksmith  and  the  jeweler,  the  weaver 
and  the  tailor,  the  merchant,  the  lawyer,  the  doctor,  etc., 


DIVISION   OF  LA  BOB.  49 

each  devotes  his  energies  to  the  work  of  his  particular 
calling. 

Some  application  of  the  principle  is  essential  to  the  or- 
gani  ration  of  civilized  society  ;  and  civilization  advances  as 
this  principle  is  carried  out  in  minute  details.  The  rami- 
fications of  the  principle  are  many  and  exceedingly  intri- 
cate. For  illustration,  we  may  start  with  the  loaf  of  bread 
on  our  table  and  trace  out  the  various  forms  of  labor 
directly  or  indirectly  concerned  in  bringing  it  before  us, 
fit  for  food.  The  loaf  came  to  us  from  the  baker,  who 
received  his  flour  from  the  miller,  who  in  turn  received 
his  grain  from  the  farmer.  This  line  of  connection  is  sim- 
ple and  direct.  But  if  we  step  into  the  bakery,  we  see  at 
once  that  many  other  forms  of  labor  are  involved  in  this 
product.  The  mason  and  the  brick-maker  and  the  lime- 
burner  have  all  done  something  to  build  the  oven  ;  the 
services  of  the  carpenter,  the  blacksmith  and  the  tinner, 
were  necessary  to  form  the  few  simple  tools  required  ; 
another  line  of  laborers  were  employed  to  cut  or  dig,  to 
transport  and  to  prepare  the  fuel ;  others  still  were  con- 
cerned in  producing  the  salt,  the  yeast  and  the  soda  mixed 
with  the  chief  ingredient ;  and  the  tools  and  materials  of 
each  of  these  branches  of  labor  required  many  other  kinds 
of  labor.  We  pass  to  the  mill  whence  the  flour  came,  and 
here  we  have  to  recognize  besides  the  miller  and  his  im- 
mediate helpers,  the  various  laborers  who  improved  the 
water-power,  built  the  mill,  prepared  the  mill-stones,  con- 
trived and  framed  the  machinery,  consisting  of  many 
parts,  each  involving  diverse  labor  and  skill,  and  those  who 
made  the  barrels,  and  packed  and  transported  the  flour  ; 
and  in  addition  to  these,  are  the  many  a  little  further  off 
who  furnished  the  instruments  and  materials  for  their  varied 
work.  We  pass  on  to  the  farmer  who  raised  the  wheat, 
and  with  him  pass  before  us  all  concerned  in  the  culture 
and  harvesting  of  his  crop,  all  who  had  to  do  with  clearing, 


50  PRODUCTION". 

fencing  and  draining  the  fields,  and  all  employed  in  the 
manufacture  of  his  divers  tools.  Then,  back  of  all  these, 
was  the  seed-wheat  and  the  complication  of  labor  involved 
in  its  production  ;  and  in  each  line  of  industry  noticed, 
the  ramifications  run  back  indefinitely  to  the  labor  of 
many  groups  and  successive  generations  of  men.  Who 
can  reckon  up  all  the  different  persons  and  forms  of 
labor  represented  thus  in  the  bread  just  ready  to  be 
eaten  ? 

Contrast  with  this  complicated  division  of  civilized  in- 
dustry, the  rude  efforts  of  the  savage  who  combines  in  one 
person  all  kinds  of  labor.  The  Indian  squaw  makes  her 
own  hoe,  scratches  the  ground,  plants  her  corn,  tends  it, 
gathers  it,  pounds  it  into  hominy,  brings  in  her  own  fuel, 
wets  up  her  cake  and  bakes  it  in  the  ashes.  The  cost  of 
this  imperfect  product,  reckoned  in  hours  of  toil  spent 
upon  it  by  the  single  laborer,  is  more  than  a  hundred  fold 
greater  than  that  involved  in  producing  the  better  article, 
which  represents  an  inh'nitesimal  quota  of  labor  expended 
by  each  of  a  hundred  or  more  persons  contributing  to  the 
common  result. 

From  this  broad,  general  view,  it  is  evident  that  this 
principle  of  Division  of  Labor  must  enter  into  every  de- 
partment of  Political  Economy.  Indeed,  the  whole  science 
grows  out  of  the  manifold  bearings  of  this  principle  in  the 
structure  and  functions  of  civilized  society. 

But  as  it  relates  to  the  department  of  Production,  the 
principle  is  presented  in  a  narrower  and  more  specific  view. 
Here  the  expression  Division  of  Labor  has  a  technical 
meaning,  respecting  the  production  of  one  or  another  par- 
ticular product.  Suppose  an  establishment  for  the  manu- 
facture of  an  article,  watches  for  instance,  is  projected. 
The  largest  and  best  results  with  the  least  expenditure  of 
labor  are  desired.  Obviously  it  will  greatly  economize  labor 
to  give  to  each  man  or  set  of  men  one  part  of  the  watch  to 


DIVISION   OF  LABOR.  51 

make.     In  the  technical  sense,  then  Division  of  Labor  im- 
plies two  things. 

1.  An  analysis  of  the  article  to  be  produced,  and  of  the 
work  to  be  done  into  distinct  and  simple  parts. 

2.  A  distribution  of  these  parts  to  the  persons  em- 
ployed, such  that  each  workman  shall  confine  himself,  as 
nearly  as  possible,  to  a  single  operation. 

The  arrangement  contemplates  such  an  adjustment  of 
the  processes  that  the  several  operations  shall  keep  each 
other  going.  One  man's  work  on  one  part,  may  balance 
that  of  three  or  four  on  another.  The  system  is  complete 
and  perfect  when  there  are  no  superfluous  hands  and  none 
are  kept  idle,  waiting  on  others'  movements, —  when  the 
several  processes  fit  into  each  other  like  the  gearing  of 
smooth  running  machinery. 

The  Special  Advantages  of  Division  of  Labor  may 
be  stated  as  follows  : 

1.  Division  of  labor  shortens  the  period  required  for 
learning  an  operation.  The  more  complicated  the  opera- 
tion, the  longer  is  the  time  necessary  for  acquiring  the 
skill  requisite  to  the  performing  of  it  successfully.  But 
this  time  spent  in  learning,  is  useless  to  the  operator  and 
to  society,  except  in  so  far  as  it  is  necessary  to  the  crea- 
tion of  the  product.  The  longer  the  time  necessary  for 
learning  an  operation,  the  higher  must  be  the  wages  of  the 
operator  for  the  remainder  of  his  life  ;  and  also,  of  course, 
the  greater  must  be  the  price  of  his  products.  If  this  can 
be  lessened,  the  price  of  course  will  fall.  That  this  is  les- 
sened by  division  of  labor  is  evident  from  an  obvious  ex- 
ample. Suppose  that  a  given  process,  say  the  making  of 
nails,  consists  of  seven  operations  ;  and  that  each  of  these 
operations  required  one  year's  practice  before  it  could  be 
successfully  performed.  Now,  if  seven  men  were  to  learn 
this  occupation  and  each  one  were  obliged  to  learn  every 


52  PRODUCTION. 

operation,  the  time  required  would  be  7x7=49  years; 
whereas,  if  each  of  them  were  required  to  learn  but  one, 
the  time  would  be  but  7x1  =  7,  or,  the  difference  would 
be  49 — 7=42  years  of  human  labor,  or  six-sevenths  of 
the  whole  time,  which  would  thus  be  saved.  There  would 
be  six  years  more  of  productive  labor  in  the  life  of  each  of 
these  men  ;  and,  as  they  had  spent  less  time  in  acquiring 
their  art,  they  could  afford  to  exercise  it  for  lower  wages. 

Besides,  there  is  intimately  connected  with  this  cause 
another  of  considerable  importance.  Every  one  in  learn- 
ing an  art,  must,  by  unskilfulness,  destroy  a  considerable 
portion  of  capital.  And  this  amount  of  capital  will  be  in 
proportion  to  the  number  of  operations  which  he  is  obliged 
to  learn.  Thus,  suppose  that  a  man  learns  seven  opera- 
tions, and,  in  learning  each  destroys  ten  dollars'  worth 
of  capital,  the  amount  which  he  will  destroy  in  acquiring 
his  whole  trade  will  be  7X10=70.  If  he  have  to  learn 
but  one,  it  will  be  but  ten  dollars ;  and  thus,  the  difference 
will  be  70 — 10=60  dollars,  upon  every  such  individual. 
A  difference  so  great  as  these  two  combined,  when  spread 
over  the  whole  face  of  society,  will  have  no  inconsiderable 
effect  upon  the  annual  net  revenue  of  a  community. 

2.  When  one  man  performs  all  the  operations  required 
in  a  complicated  process,  much  time  is  lost  in  passing  from 
one  operation  to  another.  By  division  of  labor,  this  loss  is 
avoided. 

The  effect  of  habit  is  known  to  every  one.  It  renders 
any  operation  easy,  which  is  frequently  repeated.  The 
mind  and  the  muscles  become  adapted  to  a  particular  form 
of  labor  ;  but  if  that  form  of  labor  be  suspended  and  our 
attention  be  directed  to  another,  it  requires  a  considerable 
time  before  we  can  acquire  a  different  habit,  and,  in  the 
mean  time,  the  good  effects  of  the  preceding  habit  are,  to  a 
considerable  degree,  lost.  Hence,  he  who  is  frequently 
passing  from  one  occupation  to  another,  is  in  the  condition 


DIVISION   OF  LABOR.  53 

of  him  who  is,  during  his  whole  life,  forming  habits  ;  and 
never  in  the  condition  of  him  who  has  the  advantage  of 
habits  already  formed.  Besides,  this  long  habit  produces 
in  the  muscles  a  capacity  for  continued  exertion.  He  who 
is  in  the  habit  of  performing  an  operation,  can  perform  it 
without  sensible  fatigue  for  several  hours  together.  Every 
one  who  has  ever  sawed  wood  or  used  a  spade  in  a  garden, 
is  sensible  of  this  fact.  Now,  all  this  advantage  is  lost  by 
frequently  turning  from  one  operation  to  another. 

3.  Where  complicated  tools  are  to  be  used  and  there  is 
no  division  of  labor,  much  time  is  also  lost  in  adjusting 
them  to  the  different  kinds  of  work.     By  division  of  labor 
this  disadvantage  is  obviated.     Suppose  that  nails  of  differ- 
ent sizes  are  to  be  made,  and  it  is  necessary  that  the  ma- 
chinery, in  order  to  adapt  it  to  the  different  kinds  of  work, 
should  be  frequently  adjusted  ;  the  time  so  occupied  pro- 
duces nothing  and  is  lost.     If,  on  the  contrary,  one  machine 
is  permanently  used  for  the  manufacture  of  nails  of  one 
particular  size,  all  this  loss  is  avoided.     This  is  also  more 
obvious  when  the  adjustment  involves  expense  ;  as,  for  in- 
stance, when  a  furnace  is  used.     If  a  furnace  be  heated, 
and  then  suffered  to  cool  while  the  operator  is  performing 
some  other  labor,  the  fuel  consumed  after  he  leaves  it,  and 
that  which  is  used  to  bring  it  again  to  the  requisite  tem- 
perature are  a  total  loss,  in  addition  to  that  of  the  time 
and  labor  required  in  kindling  the  fire,  and  in  waiting  for 
the  rise  of  temperature.     By  dividing  the  labor  so  that  one 
person  shall  be  always  employed  at  the  furnace,  while  others 
are  employed  at  other  parts  of  the  process,  much  capital 
and  labor  will  be  saved. 

4.  By   constantly    pursuing   the   same   occupation,    a 
degree  of  skill  and  dexterity  is  acquired,  which  greatly 
increases  the  productiveness  of  human  labor.     This  advan- 
tage is  lost  by  employing  the  same  individual  upon  several 
operations.     Adam  Smith  informs  us,  that  a  blacksmith 


54  PRODUCTION. 

who  occasionally  makes  nails,  but  whose  whole  business  is 
not  that  of  a  nail-maker,  can  make  but  from  eight  hun- 
dred to  one  thousand  nails  a  day  ;  while  a  lad  who  has 
never  exercised  any  other  trade,  can  make  upwards  of 
twenty-three  hundred  a  day.  All  who  have  been  accus- 
tomed to  visit  manufactories,  must  have  been  surprised  to 
observe  the  dexterity  which  is  acquired  even  by  children 
in  performing  the  operations  in  which  they  are  exclu- 
sively engaged.  It  is  probable  that  the  performers  of  jug- 
glery, or  sleight-of-hand,  derive  their  skill  almost  entirely 
from  this  cause.  They  seldom  perform  more  than  a  few 
operations,  but  by  practicing  these,  and  these  alone,  for  a 
great  length  of  time,  they  at  last  attain  to  a  proficiency 
which,  to  a  spectator,  is  incomprehensible. 

5.  Division  of  labor  suggests  the  contrivance  of  tools 
for  the  performance  of  the  operation  in  which  it  is  em- 
ployed. 

The  more  completely  any  process  is  analyzed,  the  sim- 
pler must  become  the  individual  operations  of  which  it  is 
composed  ;  and  the  simpler  any  operation  is,  the  easier  is 
it  to  contrive  a  tool  or  an  adjustment  by  which  it  may  be 
performed.  Adam  Smith  informs  us,  that  in  the  first 
steam  engines,  boys  were  constantly  employed  to  open  a 
communication  between  the  boiler  and  cylinder,  according 
as  the  piston  ascended  or  descended.  One  of  these  boys 
observed,  that,  by  uniting  the  handle  of  the  valve  which 
opened  this  communication  with  another  part  of  the  ma- 
chine, the  valve  would  open  and  shut  without  his  assist- 
ance and  leave  him  at  liberty  to  play  with  his  fellows. 
One  of  the  most  important  improvements  of  this  machine 
was  thus  by  division  of  labor,  brought  within  the  capacity 
of  a  playful  boy.  It  would  have  been  very  difficult  to 
invent  machinery  for  the  making  of  nails,  when  all  the 
processes  were  considered  as  a  complicated  whole.  But 
after  the  several  operations  are  divided  and  are  assigned  to 


55 

individuals  separately,  it  becomes  comparatively  easy  to 
construct  an  adjustment  by  which  any  of  them,  singly, 
could  be  performed.  This  is  the  first  step  in  invention. 
But  this  is  not  all.  After  these  several  single  instruments 
have  been  invented,  the  next  step  is  to  combine  them  to- 
gether. This  is  the  most  finished  effort  of  mechanical 
genius.  This  is  the  principal  differenca  between  a  tool 
and  a  machine.  A  tool  performs  one  single  operation  ;  a 
machine  combines  several  tools  together,  and  accomplishes 
either  the  whole,  or  a  considerable  part  of  a  complicated 
process. 

6.  Every  one  at  all  acquainted  with  manufacturing 
employments,  must  have  observed  that  some  of  the  opera- 
tions in  a  given  process,  require  greater  muscular  power  or 
greater  skill  or  greater  dexterity  than  others.  Some,  for 
instance,  can  be  performed  only  by  the  most  experienced 
workmen,  while  others  can  be  perfectly  well  performed  by 
children.  Now,  by  division  of  labor  a  manufacturer  is 
enabled  to  employ  upon  each  operation  precisely  the  labor 
adapted  to  it,  and  is  obliged  to  pay  for  each  portion  of  the 
labor  no  more  than  it  is  actually  worth.  This  must  greatly 
diminish  the  cost  of  production.  Thus,  the  manufacture 
of  pins  is  divided  into  ten  different  operations,  and  each 
operation  employs  one  laborer.  But  some  of  those  laborers 
are  men  ;  others  are  women  and  children  ;  and  their  wages 
vary  from  six  shillings  to  four  and  a  half  pence  sterling  a 
day.  If  the  labor  were  not  divided,  one  person  must 
understand  the  whole  process,  and  therefore,  must  be  em- 
ployed at  the  highest  price  of  labor ;  and  hence,  he  must 
be  paid  at  the  rate  of  six  shillings  a  day  for  that  part  of 
the  work  which  is  worth  only  four  and  a  half  pence  a  day. 
Every  one  must  see  that  this  would  greatly  increase  the 
price  of  pins,  and  also  occasion  a  groat  deficiency  in  labor. 
It  is  by  this  means,  also,  that  occupation  is  provided  for 
the  weak  and  the  aged,  for  females  and  for  children  who 


56  PRODUCTION. 

would  otherwise  be  unable  to  earn  any  thing.  Thus,  all 
the  labor  of  the  community  is  rendered  productive,  and  an 
immense  amount  is  annually  added  to  the  revenue  of  a 
country.  Nor  is  the  gain  to  be  estimated  at  simply  Avhat 
is  thus  earned.  The  whole  community  is  thus  acquiring 
those  habits  of  industry  and  self-dependence,  which  are 
essential  to  its  happiness  and  well-being,  no  less  than  to 
the  rapid  accumulation  of  its  capital. 

Nor  are  the  benefits  of  the  division  of  labor  confined  to 
mechanical  processes.  The  results  have  been  equally  inter- 
esting in  those  cases  where  this  principle  has  been  applied 
to  intellectual  labor.  The  effect  of  such  a  division  is  seen. 
in  the  following  account,  which  is  introduced  here,  not 
only  because  it  very  happily  illustrates  this  whole  subject, 
but  also  because  it  may  suggest  to  scientific  men  some 
other  cases  in  which  it  may  be  again  applied  with  similar 
benefit 

"During  the  period  of  the  French  Revolution,  the  government 
was  desirous  of  producing  a  series  of  mathematical  tables,  in  order 
to  facilitate  the  extension  of  the  decimal  system,  which  had  been 
recently  adopted.  They  directed  their  mathematicians  to  con- 
struct such  tables  on  the  most  extensive  scale.  The  superintend- 
ence of  the  work  was  confided  to  M.  Prony.  It  happened  that 
shortly  after  he  had  undertaken  it,  he  opened  in  a  bookstore 
Adam  Smith's  "Wealth  of  Nations,"  and,  by  accident,  turned 
to  the  chapter  on  division  of  labor.  The  thought  immediately 
suggested  itself  that  this  might  be  adopted  in  the  work  in  which 
he  was  engaged.  He  immediately  followed  out  the  suggestion, 
and  arranged  his  plan  accordingly.  He  divided  the  persons  who 
were  to  execute  the  labor  into  three  sections  : 

The  first  section  was  composed  of  five  or  six  of  the  most  emi- 
nent mathematicians  of  France.  Their  duty  was  to  ascertain  the 
analytical  expressions  which  were  most  readily  adapted  to  simple 
numerical  calculation,  and  which  could  be  performed  by  many 
individuals  employed  at  the  same  time.  The  formulae  on  the  use  of 
which  it  had  decided,  were  to  be  delivered  to  the  second  section. 


DIVISION   OF   LABOR.  57 

The  second  section  consisted  of  seven  or  eight  persons  of  consid- 
erable acquaintance  with  mathematics,  whose  duty  it  was  to  con- 
vert into  numbers  the  formulas  put  into  their  hands  by  the  first 
section  ;  and  then  to  deliver  out  these  numbers  to  the  members  of 
the  third  section,  and  to  receive  from  them  the  finished  calcula- 
tions. These  they  could  verify  without  repeating  the  work. 

The  third  section  consisted  of  sixty  or  eighty  persons.  They 
received  the  numbers  from  the  second  section,  and,  using  nothing 
more  than  addition  and  subtraction,  returned  to  that  section  the 
finished  tables.  Nine-tenths  of  this  class  had  no  knowledge  of 
arithmetic  beyond  its  first  two  rules  ;  and  it  is  remarkable  that 
these  were  usually  found  more  correct  in  their  calculations  than 
those  who  possessed  a  more  extensive  knowledge  of  the  subject. 
The  extent  of  the  labor  which  was  thus  executed  in  a  remarkably 
short  space  of  time,  may  be  estimated  when  it  is  stated  that  the 
tables  thus  formed  are  computed  to  occupy  seventeen  large  folio 
volumes.  And  yet  we  see  that  the  greatest  part  of  the  labor  was 
actually  accomplished  by  persons  who  might  be  employed  at  very 
small  expense,  and  who  could  do  the  work  assigned  them  as  per- 
fectly as  those  whose  labor  was  the  most  expensive.* 

*  Babbage  on  Economy  of  Machinery. 

3* 


CHAPTER  VII. 


LIMITATIONS  TO  THE  DIVISION  OF  LABOE. 

THE  principle  so  beneficial  in  its  varied  application,  is 
limited  by  certain  conditions  which  cannot  be  set  aside. 
We  may  notice  four  such  restrictions. 

1.  That  which  comes  from  the  Nature  of  the  Process. 
Every  process  can  be  analyzed  into  its  ultimate  elements ; 
that  is,  into  the  various  simple  processes  of  which  it  is 
composed.  Thus  in  pin-making  the  straightening  of  the 
wire  is  one  operation,  the  cutting  it  into  equal  lengths  is 
another,  the  sharpening  of  the  points  is  another,  the  head- 
ing of  the  pin  is  another,  etc.  But  when  we  have  reduced 
the  operation  to  its  simple  elements  we  can  proceed  no 
further.  Hence,  here  is  our  necessary  limit ;  for  it  is  no 
division  of  labor  to  employ  two  men  to  perform  precisely 
the  same  operation.  Hence  an  establishment  which  car- 
ries division  to  this  limit,  will  be  able  from  what  has  been 
said,  to  undersell  another  which  does  not  carry  it  to  the 
same  degree  of  perfection.  And  hence,  in  establishing 
a  manufactory,  it  is  important  so  to  adjust  the  number 
and  kind  of  workmen,  that,  when  the  different  operations 
of  a  process  have  been  assigned  to  different  persons,  these 
versons  may  be  in  such  proportions  as  exactly  and  fully  to 
employ  each  other.  The  more  perfectly  this  is  accomplished 
the  greater  will  be  the  economy.  And,  this  having  been 
once  ascertained,  it  is  also  evident  that  the  establishment 


LIMITATIONS  TO   DIVISION  OF  LABOtt.  59 

cannot  be  successfully  enlarged,  unless  it  employ  multiples 
of  this  number  of  workmen. 

2.  Division  of  labor  way  be  limited  by  Deficiency  of 
Capital.     Division  of  labor  in  manufactures,  cannot  be 
carried  on  unless  the  proprietor  have  sufficient  capital  to 
employ,  at  the  same  time,  all  the  persons  necessary  to  such 
a  division,  and  to  keep  them  so  employed  until  the  pro- 
ceeds of  their  work  enable  him  to  furnish  them  again  with 
fresh  material.     This  is  of  course  a  considerable  outlay, 
and  supposes  a  considerable  accumulation  of  the  proceeds 
of  pre-exerted  industry.    Hence,  in  a  poor  or  in  a  new  coun- 
try, there  can  be  but  little  division  of  labor.     No  one  has 
more  than  enough  capital  to  employ  himself,  and,  perhaps 
one  or  two  laborers ;  and  hence  each  individual  performs 
all  the  operations  of  each  process,  and  frequently  those  of 
several  processes.     The  same  individual  is   the  farrier, 
blacksmith,  cutler,  and  perhaps  wheelwright,  for  a  whole 
settlement.     To  illustrate  this  by  a  single  instance  :  If  a 
nailer  be  able  to  purchase  no  larger  amount  of  iron  and 
coal  than  he  can  use  in  the  manufacture  of  nails  in  a  day, 
he  must  perform  all  the  parts  of  the  process  himself ;  and 
of  course  must  labor  very  disadvantageously.     As  soon 
however,  as  he  is  able  to  double  his  capital,  he  may  employ 
another  person  to  work  with  him,  and  they  may  then  in- 
troduce a  division  of  labor.     When  he  has  tripled  his  capi- 
tal he  may  employ  another  workman  and  carry  his  division 
still  further.     He  may  thus  go  on  until  he  has  reduced  the 
process  to  its  simplest  elements.     When  he  has  gone  thus 
far,  the  accumulation  of  his  annual  capital  will  enable  him 
to  invest  something  in  fixed  capital.     He  will  thus  be  able 
to  purchase  some  of  the  simpler  machines  by  which  some 
of  the  parts  of  his  process  may  be  executed.     To  these .  he 
will  add  others  as  he  advances  in  wealth,  until  his  accumu- 
lated means  enable  him  to  combine  them  into  one  machine 
for  completing  the  whole  process.     Thus  he  becomes  a 


60  PRODUCTION. 

manufacturer,  and  derives  the  larger  part  of  his  revenue 
from  the  use  of  his  fixed  capital.  At  every  step  his  gains 
will  be  greater,  and  at  the  same  time  the  price  of  his  pro- 
duct will  become  less.  It  is  not  pretended  that  all  these 
changes  always,  or  frequently,  take  place  within  the  life- 
time of  a  single  individual.  The  progress  of  society  is  not 
generally  so  rapid.  Yet  they  sometimes  occur  in  the  man- 
ner stated.  The  illustration  shows  the  tendency  of  things. 
But  whether  the  results  are  comprised  in  the  life-time  of 
one,  two,  or  three  individuals,  the  principle  is  the  same. 

3.  Division  of  labor  may  be  limited  by  the  Demand  for 
the  article  produced.  Suppose  that,  in  a  given  district, 
there  is  a  demand  for  one  hundred  pounds  of  nails  per  day 
and  that  these  can  be  made  by  two  men.  If  three  men 
could,  by  division  of  labor,  make  two  hundred  pounds  per 
day  there  would  be  but  small  gain  either  to  the  workmen 
or  to  the  public  ;  because  these  men  would  of  course  lie 
idle  half  of  the  time,  and  for  this  time  they  must  be  paid 
as  well  as  for  the  time  in  which  they  are  employed.  Or, 
if  they  did  not  lie  absolutely  idle,  that  portion  of  the  time 
which  was  employed  on  other  labor  would  be  of  compara- 
tively small  value  ;  and  they  by  attending  to  other  busi- 
ness, would  lose  the  skill  which  complete  division  of  labor 
confers,  and  which  is  one  of  its  principal  benefits.  The 
case  is  still  stronger,  if  we  take  into  view  the  fact  that 
division  of  labor  supposes  a  large  investment  of  fixed  capi- 
tal, and  that  those  who  are  educated  to  any  manufacturing 
business,  can  rarely  employ  themselves  upon  any  thing 
else.  If  the  laborers  at  any  of  our  manufactories  were 
employed  only  half  the  time  their  wages  must  be  doubled  ; 
for  their  families  must  be  supported  one  day  as  well  as 
another,  and  thus  the  interest  of  the  whole  investment 
must  be  charged  upon  half  the  quantity  of  product.  These 
causes  together  with  the  loss  of  skill  in  workmen,  would 
more  than  double  the  price  of  products,  and  would  of  ne- 


LIMITATIONS  TO   DIVISION   OF  LABOR.  6J 

cessity,  carry  back  the  division  of  labor  to  its  less  perfect 
state. 

But  this  demand  must  depend  upon  several  circum- 
stances.    The  most  important  of  these  are  the  following  : 

a.  The  Number  of  the  Consumers.     When  the  number 
of  inhabitants  is  small  as  in  a  new  settled  country,  or  in 
an  isolated  situation,  the  demand  must  of  course  corre- 
spond to  their  number.     One  hundred  men  will  require 
but  one-tenth  as  many  hats  or  shoes  as  one  thousand  men. 
It  is  on  this  account  that  wealth  accumulates  most  rapidly 
on  navigable  waters,  because  the  market  of  the  producers 
is  not  limited  to  themselves,  but  may  be  easily  extended 
to  other  places. 

b.  The  Wealth  of  the  inhabitants.     Demand  does  not 
signify   simple   desire   for   an   article,    but  desire  for   it, 
combined  with  the  ability  and  willingness  to  give  for  it 
what  will  remunerate  the  producer.     Hence,  the  greater 
the  ability  in  a  given  population  to  remunerate  the  pro- 
ducer, the  greater  will  be  the  demand.     The  demand  for 
hats  in  a  population  of  one  thousand  men,  would  be  lim- 
ited to  those  persons  in  that  population  who  were  able  to 
buy  a  hat.     The  larger  the  proportion  of  such  individuals, 
the  better  it  would  be  for  the  hatter  and  for  every  other 
producer.     Hence  we  see  that  every  individual  is  inter- 
ested in  the  prosperity  of  every  other  individual  in  the 
community. 

c.  TJie  Cost  of  the  article.     The  greater  the   cost   of 
the  product,  the  smaller  will  be  the  number  of  persons 
who  are  able  to  purchase  it.     Hence  the  less  Avill  be  the 
demand  ;  and  hence,  also,  the  less  opportunity  will  there 
be  for  division  of  labor.     And  besides  the  greater  the  cost 

o 

of  the  article,  the  greater  amount  of  capital  is  required  in 
order  to  produce  it  by  division  of  labor.  Hence,  this 
cause  operates  in  two  ways  to  prevent  the  employment  of 
this  means  of  effecting  the  reduction  of  price.  Thus,  if  a 


62  PRODUCTION". 

community  consist  of  one  thousand  men,  and  of  these  one 
hundred  be  worth  one  thousand  dollars  per  year ;  four 
hundred  be  worth  five  hundred  dollars ;  and  the  remain- 
der be  worth  but  two  hundred  and  fifty  dollars  per  year  ; 
and  an  article  be  produced  within  the  reach  of  only  the 
first  of  these  classes,  it  can  have  but  one  hundred  pur- 
chasers ;  if  it  come  within  the  reach  of  the  second  class,  it 
will  have  five  hundred ;  and  if  it  come  within  the  reach 
of  the  third  class,  it  will  have  one  thousand  purchasers. 
Hence  it  is  that  division  of  labor  is  but  sparingly  used  in 
the  manufacture  of  rich  jewelry,  and  in  articles  of  expen- 
sive luxury  ;  while  it  is  so  universally  used  in  the  production 
of  all  articles  of  common  use.  Hence  we  see,  that  the 
benefits  of  the  use  of  natural  agents  and  of  division  of 
labor,  are  vastly  greater  and  more  important  to  the  mid- 
dling and  lower  classes,  than  to  the  rich.  These  means 
of  increased  production,  reduce  the  cost  of  the  necessaries 
and  of  the  essential  conveniences  of  life  to  the  lowest  rate, 
and  of  course  bring  them,  as  far  as  possible,  within  the 
reach  of  all. 

d.  Facilities  of  Transportation.  This  is  evident, 
from  what  has  been  said.  The  cost  of  an  article  depends 
not  only  on  the  cost  of  its  original  production,  but  also 
upon  the  cost  necessary  to  bring  it  to  the  consumer.  Coal 
may  be  very  cheap  at  a  coal  mine,  but  if  it  must  be  borne 
on  the  shoulders  of  men  to  the  consumer,  it  would  at  a 
few  miles  from  the  mine  become  so  dear  that  no  one  would 
be  able  to  use  it.  The  demand  would  be  so  small  that 
there  would  be  no  profit  either  in  investing  capital  in  the 
machinery,  or  in  employing  division  of  labor  to  raise  it 
from  the  mine.  But  if  horses  be  used  to  transport  it  to 
the  consumer,  the  demand  will  increase.  Again, .  if  for 
horses,  canals  and  railroads  be  substituted,  it  will  become 
cheap,  and  the  demand  will  increase  still  more  ;  and,  with 
every  such  improvement  that  circle  of  consumption  ex- 


LIMITATIONS  TO  DIVISION  OF  LABOR.  63 

pands,  of  which  the  mine  is  the  centre.  The  same  princi- 
ple applies  to  manufactures,  specially  those  of  iron  or 
heavy  ware,  and  it  applies  just  in  proportion  as  transpor- 
tation forms  a  large  or  small  part  of  the  cost  to  the  con- 
sumer. And  thus,  in  general,  we  see  the  principle  on 
which  facilities  for  internal  communication  improve  the 
condition  of  both  the  other  branches  of  industry.  For  this 
reason  the  price  of  land  and  grain  rises  in  a  district  through 
which  a  canal  or  a  railroad  passes  ;  and  for  the  same  rea- 
son manufactories  may  at  one  time  be  successfully  estab- 
lished in  situations  where  they  at  another  time  would  have 
been  useless,  if  not  ruinous  to  the  proprietor.  And  still 
more  generally,  we  see  the  manner  in  which  all  the  branches 
of  labor  assist  each  other.  A  railroad  or  a  canal  can  never 
profitably  be  constructed  in  a  country  where  there  is  noth- 
ing to  be  transported.  But  where  agriculture,  manufac- 
tures and  commerce  are  productive,  and  hence  require  a 
large  amount  of  transportation,  there  these  facilities  are 
immediately  in  demand.  Were  Liverpool  and  Manchester 
to  decline,  of  what  use  would  be  the  railroad  between 
them  ?  And,  on  the  other  hand  the  railroad  between 
them,  by  reducing  the  cost  of  all  articles  bought  and  sold, 
diminishes  the  cost  of  living  in  both  places,  enables  the 
producer  to  come  into  market  with  greater  advantages,  in- 
creases the  profits  in  all  kinds  of  industry,  -facilitates  the 
accumulation  of  capital  and  thus  adds  greatly  to  the  annual 
revenue  of  both  cities. 

4.  The  Division  of  Labor  is  limited  also  by  the  Execu- 
tive capacity  of  man.  In  every  large  establishment  there 
must  be  one  person  at  the  head,  whose  supervision  must  be 
felt  in  all  departments,  to  hold  every  one  employed  to  strict 
responsibility  and  fidelity  in  his  particular  service.  His 
judgment  must  determine  a  thousand  questions  respecting 
both  general  results  and  detailed  operations.  And  his  will 
must  pervade  the  whole  system  of  divided  labor,  as  a  guide 


64  PRODUCTION. 

and  stimulus  to  many  subordinate  wills,  that  all  may  work 
in  harmony  for  a  common  end.  The  qualities  which  fit 
one  for  these  exercises  we  call  executive  capacity.  The 
successful  management  of  a  great  manufactory  thus  re- 
quires talents  of  the  highest  order.  But  in  the  man  most 
highly  endowed,  there  is  a  limit  of  both  capacity  and  en- 
durance. Theoretically,  it  would  be  an  advantage  to  have 
the  entire  industry  of  a  state  perfectly  systematized  on  the 
principle  of  division  of  labor.  But  no  one  human  head 
would  be  equal  to  the  supervision  and  control  essential  to 
the  harmony  and  success  of  such  an  arrangement.  We 
have  frequent  and  sad  instances  of  minds  deranged,  of 
lives  sacrificed  and  of  great  enterprises  wrecked  by  an  ex- 
pansion of  business  beyond  the  capacity  of  the  manager's 
mind.  In  these  days,  this  limitation  of  the  principle 
under  consideration  is  too  little  regarded. 

Evils  incident  to  the  Application  of  this  Prin- 
ciple.— Under  the  division  of  labor  so  advantageous  in 
most  respects,  there  are  liabilities  and  tendencies  to  evil 
which  must  be  noticed.  We  mention 

1.  The  Danger  of  impairing  physical  Health  and  Vigor, 
A  variety  of  exercise  is  essential  to  the  full  and  healthful 
development  of  the  faculties  and  functions  of  the  body. 
But  the  division  of  labor  often  involves  long  and  close  con- 
finement to  a  single  operation — an  overtasking  of  some  one 
limb  or  set  of  muscles — a  posture  which  may  cramp  and 
oppress  the  vital  organs — exposure  to  deleterious  gases  and 
exhalations — the  breathing  for  hours  in  crowded  rooms  of 
air  bereft  of  oxygen  and  charged  with  carbonic  acid.  It 
offers  also  strong  temptations  to  the  confinement  and 
severe  labor  of  children  not  yet  grown,  by  Avhich  their 
bodies  are  depressed  and  their  lives  are  shortened.  The 
vital  statistics  of  large  manufacturing  towns  present  too 
many  painful  facts  illustrating  this  evil.  There  is  a  real 


EVILS   INCIDENT  TO   DIVISION   OF   LABOR.  65 

danger  here,  but  it  may  be  in  great  measure  counteracted 
by  the  careful  study  of  sanitary  measures.  Wise  economy 
dictates  the  introduction  and  use,  even  at  some  expense, 
of  appliances  which  secure  to  laborers  of  every  kind  pure 
air  and  varied  physical  exercise. 

2.  The  mind  is  liable  to  be  Contracted  and  Enfeebled. 
When  one's  attention  and  energies  are  all  absorbed  in  a 
minute  operation,   such  as  sharpening  pins   or  counting 
buttons  by  a  machine,  the  free  development  of  the  mind 
is  likely  to  be  cramped  and  hindered.     This  liability  must 
be  recognized.     It  is  however  relieved  in  part  by  the  law 
of  habit,  inherent  in  the  very  constitution  of  the  mind. 
Under  this  law,  the  mind's  action  in  the  particular  opera- 
tion  by  constant  exercise  runs  on  almost  unconsciously 
with  the  machine,  as  though  identified  with  it,  and  the 
other  faculties  are  free  to  be  engaged  about  other  matters  ; 
just  as  when  walking,  while  each  step  really  requires  an 
exercise  of  attention,  judgment  and  will,  the  whole  action 
is  so  much  a  matter  of  habit  that  the  mind  is  free  for  the 
exercise  of  fancy  or  profound  thought  on  a  wide  range. 
Moreover,  the  association  of  numbers  in  large  establish- 
ments, gives  scope  for  the  introduction  of  means  of  intel- 
lectual improvement,  such  as  schools,  lyceums,   reading- 
rooms  and  lectures  which  may  effectually  counteract  this 
tendency,  and  become  a  real  advantage  to  the  whole  com- 
munity of  laborers. 

3.  The  Division  of  Labor  may  involve  some  loss  of  In- 
dependence and  Self-Respect.     It  diminishes  the  numbers 
of   those  who  manage  business  for  themselves  and  thus 
throws  into  the  class  of  workmen  dependent  on  wages, 
many  capable  and  worthy  men  whose  manliness  and  char- 
acter would  be  better  developed,  and  whose  chances  for 
acquiring  wealth  would  be  greater  under  the  responsibility 
of  a  business  of  their  own.     In  large  establishments,  also, 
the  fate  of  a  great  body  of  workmen  hangs  on  the  success 


66  PRODUCTION'. 

or  failure  of  a  few  managers  and  capitalists.  The  failure 
of  a  single  manufacturing  company  thus  involves  a  sweep- 
ing disaster,  and  the  mischiefs  of  a  general  financial  crisis 
are  aggravated  as  all  are  involved  together.  This  evil  may 
be  relieved  by  devices  for  giving  employes  a  personal  in- 
terest in  the  business  and  by  a  system  of  promotion  to 
higher  and  more  responsible  trusts  on  the  ground  of  fidel- 
ity and  efficiency.  There  can  be  no  doubt  that  on  the 
whole,  the  average  condition  and  prospects  of  working  men 
are  improved  by  the  systematic  arrangement  which  under 
the  principle  of  division  of  labor  prevails  in  large  industrial 
establishments. 

4.  The  principle  of  division  of  labor  favors  combina- 
tions and  strikes,  as  it  brings  together  and  holds  in  inti- 
mate association,  as  a  class,  great  numbers  of  dependent 
und  often  unintelligent  workmen.  We  only  mention  this 
item  in  this  connection.  The  full  discussion  of  this  topic 
l>elongs  to  the  third  division  of  our  science — distribution, 
and  will  there  be  treated  at  some  length. 

These  incidental  evils  are  greatly  overbalanced  by  the 
advantages  which  proceed  from  the  application  of  this  law. 
Yet  they  are  of  importance  enough  to  deserve  serious  con- 
sideration and  to  engage  earnest  study  to  devise  means  for 
their  relief.  Far-seeing  self-interest,  no  less  than  the  spirit 
of  philanthropy  prompts  to  such  study  and  such  efforts. 

International  Division  of  Labor. — This  phase 
of  our  subject  demands  some  special  notice  and  illustration. 

It  is  manifest  that  the  different  portions  of  the  same 
country  possess  different  facilities  for  producing  the  objects 
of  human  desire.  No  district  possesses  advantages  for 
producing  everything  ;  but  almost  every  district  possesses 
peculiar  facilities  for  producing  something.  Now,  natural 
advantages  are  clearly  nothing  more  than  means  of  in- 
creased productiveness  of  labor  in  the  creation  of  any  par- 


INTERNATIONAL  DIVISION  OF  LABOR.  67 

ticular  product.  If  one  soil  will  produce  forty  bushels  of 
wheat  to  the  acre,  with  the  same  labor  that  another  will 
produce  twenty,  the  labor  upon  the  first  is  twice  as  pro- 
ductive as  that  upon  the  second  ;  that  is,  the  owner  of  the 
one  has  a  machine  by  which  he  can,  with  the  same  labor, 
produce  twice  as  much  as  his  neighbor.  But  perhaps  the 
soil  which  will  produce  only  twenty  bushels  of  wheat,  will 
produce  forty  bushels  of  corn  per  acre,  while  the  other 
soil  will  produce  only  twenty.  This  second  soil  is  there- 
fore an  instrument  which  gives  a  double  productiveness  to 
labor  in  the  raising  of  corn.  Now  it  is  manifest  that  if 
each  one  devotes  himself  to  the  production  of  that  for 
which  nature  has  given  him  peculiar  facilities,  his  amount 
of  production  will  be  greater,  he  will  himself  be  richer,  and 
the  whole  community  will  be  supplied  at  a  diminished  cost. 
Suppose  that  each  occupied  twenty  acres,  and  each  pro- 
duced the  crop  for  which  he  had  the-  greater  advantages  ; 
the  result  would  be  20x40—800  of  wheat,  and  the  same 
of  corn  ;  =800  bushels  of  wheat  and  800  of  corn.  Suppose 
again  they  divided  their  crops,  and  each  appropriated  ten 
acres  to  wheat  and  ten  to  corn  ;  the  result  would  be 
10x40-400  of  wheat,  and  10x20— -200  of  corn;  and 
10x40=400  of  corn,  and  10x20  =  200  of  wheat;  that  is, 
600  of  wheat  and  600  of  corn  ;  that  is,  there  would  be  600 
instead  of  800  bushels  of  each  raised,  and  the  loss  to  both 
and  to  the  community  would  be  200  bushels  of  each  a  year. 
By  so  much  would  they  both  be  poorer  than  by  devoting 
themselves  wholly  to  that  product  for  which  each  had  the 
greatest  natural  advantages. 

Or,  to  take  another  case.  Suppose  one  district  rich  in 
soil  and  adapted  to  the  production  of  wheat,  but  level  and 
far  inland,  and  therefore  unadopted  by  position  and  want 
of  the  proper  natural  agents,  to  the  production  of  manu- 
factures ;  and  another  district  on  the  sea-board  hilly  and 
sterile,  adapted  to  manufactures  but  unadapted  to  the  cul- 


68  PRODUCTION. 

ture  of  wheat.  On  the  first,  with  one  day's  labor,  a  man 
may  raise  two  bushels  of  wheat,  but  could  produce  but  four 
yards  of  cloth.  On  the  other,  by  the  same  labor,  a  man 
can  produce  twelve  yards  of  cloth,  but  can  raise  only  one 
bushel  of  wheat.  Now  it  is  manifest  that  by  each  district's 
devoting  its  labor  to  that  kind  of  production  for  which  it 
has  the  greatest  natural  facilities,  the  production  of  the 
whole  country  will  be  increased.  It  is  also  evident  that  a 
man  in  the  wheat  district  will  provide  himself  with  cloth 
at  a  cheaper  rate  by  raising  wheat  and  procuring  cloth  by 
exchange,  than  by  manufacturing  it  himself  ;  and  on  the 
other  hand,  that  the  manufacturer  will  provide  himself 
with  wheat  at  a  much  cheaper  rate  by  making  cloth,  than 
by  raising  wheat  himself.  Thus  by  this  form  of  division 
of  labor,  the  productive  power  of  both  is  increased  ;  their 
desires  are  gratified  at  the  expense  of  less  labor  ;  and  thus 
both  are  rendered  richer  and  happier. 

All  this  seems  obvious,  if  only  the  several  districts  of 
the  same  country  be  compared.  And  it  is  obvious,  because 
every  one  perceives  that  God  has  bestowed  upon  different 
districts  of  the  same  country  different  advantages,  which 
it  is  for  the  interest  of  that  country  that  each  district 
should  improve  to  the  utmost.  But  every  one  may  see 
that  the  same  principles  apply  to  different  nations  inhabit- 
ing the  different  quarters  of  the  globe.  The  separation  of 
the  earth  into  warring  nations,  is  nothing  but  the  arbitrary 
work  of  man  ;  it  alters  neither  the  qualities  nor  the  rela- 
tions which  God  has  given  to  things,  nor  the  laws  under 
which  he  has  constituted  man.  If  a  man  own  a  farm  of 
which  one  part  is  suited  only  to  tillage,  and  another  part 
only  to  grazing,  and  he  divide  it  and  sell  the  pasture  land 
to  his  neighbor  ;  this  does  not  alter  the  nature  of  the 
soil.  Will  it  not  be  just  as  profitable  to  appropriate  each 
part  to  the  purpose  for  which  God  designed  it,  after  the 
purchase  as  before  ? 


INTERNATIONAL   DIVISION   OF   LABOR  69 

Every  man  needs,  for  the  gratification  of  his  innocent 
desires,  nay,  for  his  conveniences  and  even  necessaries,  the 
productions  of  every  part  of  the  globe.  To  be  convinced  of 
this,  we  have  only  to  enumerate  the  articles  which  furnish 
our  houses,  the  food  that  covers  our  tables,  and  the  rai- 
ment which  clothes  our  bodies.  How  greatly  would  all 
our  means  of  happiness  be  diminished,  were  we  deprived 
of  the  iron,  the  furs,  and  the  hemp  of  the  North  ;  the  cof- 
fee, teas,  sugar,  rice,  fruits,  and  spices  of  the  South ;  or 
the  wool,  the  wheat  and  the  manufactures  of  temperate 
climates.  Every  one  must  be  convinced  that  the  happiness 
of  every  man  is  increased  in  proportion  as  he  is  furnished 
with  the  greatest  number  of  these  objects  of  desire  ;  and 
furnished  with  them  in  their  greatest  perfection  and  at  the 
cheapest  rate. 

But  it  is  evidently  the  will  of  our  Creator,  that  but  few 
of  these  objects,  every  one  of  which  is  necessary  to  the 
happiness  of  every  individual,  should  be  produced  except 
in  particular  districts.  Others,  if  they  can  be  produced 
in  several  places,  can  be' produced  much  more  cheaply,  and 
in  greater  perfection  in  some  places  than  in  others.  Every 
part  of  the  globe  possesses  peculiar  advantages  for  the  pro- 
duction of  something  ;  but  no  part  possesses  advantages  for 
the  production  of  every  thing.  Hence  we  see  on  the  prin- 
ciple illustrated  above,  that  the  annual  production  of  the 
globe  will  be  greatest ;  that  is,  there  will  be  the  largest 
amount  falling  annually  to  the  share  of  every  individual ; 
that  is,  every  individual  will  be  richer  and  happier,  ivhen 
each  portion  of  the  globe  devotes  itself  to  the  creation  -of 
those  products  for  which  it  has  the  greatest  natural  facili- 
ties. If  a  man  in  New  York  can  produce  by  one  day's 
labor,  one  hundred  pounds  of  flour,  but  could  not  produce 
more  than  one  ounce  of  coffee  ;  and  a  man  in  Cuba  can 
produce  twenty-five  pounds  of  coffee,  but  cannot  produce 
more  than  one  pound  of  flour,  and  they  exchange  as  we 


70  PRODUCTION. 

have  before  seen  they  must  exchange,  labor  for  labor  ;  the 
one  will  produce  by  a  day's  labor  twenty-five  pounds  of  cof- 
fee instead  of  an  ounce  ;  and  the  other  one  hundred  pounds 
of  flour  instead  of  a  pound.  Is  not  this  better  than  for 
the  Xew  York  farmer  to  raise  his  coffee  in  a  hot-house, 
at  the  expense  of  a  day's  labor  for  an  ounce ;  and  the 
West  Indian  to  raise  his  wheat  on  the  mountains,  at  the 
expense  of  a  day's  labor  for  a  pound.  Such  are  the  advan- 
tages of  that  division  of  labor  suggested  by  Geographical 
Position. 

And  the  Final  Cause  of  all  this  is  evident.  God  in- 
tended that  men  should  live  together  in  friendship  and 
harmony.  By  thus  multiplying  indefinitely  their  wants, 
and  creating  only  in  particular  localities  the  objects  by 
which  those  wants  can  be  supplied,  he  intended  to  make 
them  all  necessary  to  each  other,  and  thus  to  render  it  no 
less  the  interest  than  the  duty  of  every  one,  to  live  in 
amity  with  all  the  rest. 

Nor  is  the  application  of  this  principle  confined  to 
geographical  localities.  The  simple  fact  that  a  nation 
possesses  facilities,  be  they  either  natural  or  acquired,  for 
creating  any  product  at  a  cheaper  rate  than  any  other 
nation,  is  a  reason  why  that  nation  should  devote  itself  to 
the  creation  of  that  product;  and  why  another  nation 
should  for  the  same  reason  improve  its  own  peculiar  ad- 
vantages. Thus,  there  are  certain  states  of  society,  and  a 
certain  amount  of  accumulation  of  capital,  most  favorable 
to  the  creation  of  certain  products.  A  nation  in  this  State 
and  with  this  accumulation,  can  furnish  these  products 
cheaper  than  her  neighbors  ;  and  this  is  a  reason  why  they 
should  purchase  them  of  her.  Could  not  one  of  our  old 
States  supply  one  of  the  new  States  with  manufactures, 
cheaper  than  the  new  State  could  produce  them  herself  ? 
And  is  this  not  a  reason  why  the  new  State  should  procure 
them  by  exchange  rather  than  by  direct  production  ?  Is 


INTERNATIONAL  DIVISION   OF  LA  BOB.  71 

it  not  cheaper  for  an  Indian  to  buy  a  rifle  of  an  European 
than  to  attempt  to  make  one  for  himself  ? 

This  is  however  by  no  means  to  assert  that  such  ar- 
rangements and  relations  are  to  be  permanent.  As  a 
country  accumulates  fixed  capital,  it  creates  its  own  facili- 
ties for  creating  almost  every  kind  of  manufactured  pro- 
duct. One  nation  will  naturally  begin  to  do  this  at  the 
same  point  of  accumulation  at  which  another  began  to  do 
it.  And  the  way  in  which  to  arrive  at  this  point  the 
soonest,  is  to  become  rich  as  fast  as  possible  •  that  is,  to  buy 
as  cheap  as  we  can,  or  in  other  words  to  procure  annually 
as  many  objects  of  desire  as  possible,  for  a  given  amount 
of  labor.  A  tribe  of  Indians  would  much  sooner  be  able 
to  make  rifles  for  itself,  by  purchasing  at  first  rifles  of  an 
European,  than  by  determining  that  it  would  never  use 
rifles  until  it  could  manufacture  them  for  itself.  As  the 
use  of  a  rifle  would  render  industry  more  productive,  and 
thus  render  the  tribe  richer,  it  would  bring  them  one  step 
nearer  to  that  degree  of  accumulation  at  which  they  might 
.begin  to  make  rifles  for  themselves.  But  the  resolution 
not  to  purchase  of  others  would  have  no  such  tendency, 
inasmuch  as  it  would  do  nothing  whatever  toward  accumu- 
lating production  ;  but  would  on  the  contrary,  shut  them 
out  from  the  very  means  offered  them  for  most  rapidly 
benefiting  their  condition. 

To  sum  up  what  has  been  said.  It  will  be  seen  that 
production  will  be  increased  ;  that  is,  men  will  be  richer 
and  therefore  may  be  happier,  as  the  following  conditions 
are  complied  with  : 

1.  As  the  laws  of  nature,  designed  by  our  Creator  for 
our  benefit,  are  understood  ; 

2.  As  the   means  are    devised  for  availing  ourselves, 
in    the   most  successful  manner,  of  the  utility  of  these 
laws ; 

3.  As  the  human  labor  necessary  to  be  expended  is  so 


72  PRODUCTION". 

arranged  as,  with  a  given  expenditure,  to  produce  the 
greatest  and  most  perfect  result  ;  and 

4.  As  the  inhabitants  of  the  earth  in  different  locali- 
ties, devote  themselves  most  exclusively  to  the  production 
of  those  objects  of  desire,  for  the  production  of  which  they 
have  received,  either  directly  or  indirectly,  from  their 
Creator,  the  greatest  facilities. 

Or,  still  more  generally,  production  will  be  abundant ; 
that  is,  man  will  enjoy  the  means  of  physical  happiness 
in  proportion  to  his  individual  industry,  both  of  body  and 
mind ;  and  to  the  degree  of  harmony  and  good  feeling 
which  exists  between  the  individuals  of  the  same  society  ; 
and  also  between  the  different  societies  themselves. 


CHAPTER  VIII. 

CAPITAL. 

Its  Definition. — Capital  is  that  part  of  Wealth  which 
is  employed  in  Production.  The  word  is  often  used 
vaguely  and  with  diverse  meanings.  We  need  to  adhere 
to  a  strict  definition.  The  generic  idea  is,  as  stated, 
wealth  set  apart  to  be  consumed  in  the  reproduction  of 
wealth.  The  technical  use  of  the  term  always  has  refer- 
ence to  Production. 

All  capital  is  wealth,  but  all  wealth  is  not  capital. 
Suppose  a  farmer's  crop  this  year  gives  him  a  hundred 
bushels  of  wheat  to  spare.  He  may  exchange  this  surplus 
for  gold,  and  bury  the  gold  for  safe-keeping.  That  gold 
is  wealth,  but  it  is  not  capital ;  for  while  buried  it  can 
contribute  nothing  to  the  further  production  of  wealth. 
He  may  exchange  his  wheat  for  a  beautiful  painting  to 
adorn  his  home.  The  picture  is  still  wealth,  but,  hanging 
on  the  wall,  it  will  do  nothing  to  increase  the  next  year's 
crop — it  is  not  capital.  He  may  exchange  his  surplus  of 
wheat  for  a  horse,  or  for  labor  in  clearing  and  draining 
another  field.  Now  the  wheat  is  gone  and  the  money  is 
gone,  but  the  wealth  is  still  his,  in  the  horse  or  in  the  im- 
proved land,  turned  into  means  for  the  production  of  a 
larger  crop  next  year  ;  that  is,  he  has  turned  this  part  of 
his  wealth  into  Capital. 

Capital  is  not  synonymous  with  Money,  as  too  many 
suppose.  The  money  for  which  the  farmer  sold  his  wheat, 
while  simply  hoarded,  is  wholly  withdrawn  from  produc- 


74  PRODUCTION. 

tion,  and  though  he  may  think  himself  .rich  in  its  posses- 
sion, it  is  not  capital  for  him  or  anybody  else.  If  he  holds 
it  as  a  fund  for  the  payment  of  laborers'  wages  and  the 
purchase  of  implements  next  year,  it  is  prospective  capital 
and  may  be  all  that  will  be  required  for  these  purposes  ; 
but  as  money,  it  cannot  itself  assist  his  production.  "What 
he  wants  is  what  the  money  will  buy,  and  in  any  view,  it 
constitutes  but  a  small  part  of  his  real  capital.  His  land, 
his  buildings,  his  live-stock  and  his  tools,  make  up  the 
bulk  of  his  capital.  So  money  in  circulation  as  an  instru- 
ment of  exchange,  performs  an  important  function  in  the 
productive  industry  of  a  country,  as  will  hereafter  be 
shown.  But  in  the  case  of  an  individual,  or  a  joint-stock 
company,  in  a  community  or  a  nation,  though  the  whole 
capital  is  estimated  in  terms  of  money,  the  money  in  hand 
amounts  to  very  little  in  proportion  to  the  capital  actually 
in  use. 

The  Origin  of  Capital. — Capital  is  always  the 
fruit  of  past  labor,  saved.  A  farmer's  boy  once  received  as 
a  reward  for  a  bit  of  work,  the  gift  of  an  ewe-lamb.  It 
was  the  first  thing  he  ever  earned.  He  might  have  sold 
the  lamb  to  a  butcher  and  spent  -the  avails  for  his  imme- 
diate gratification.  Instead  of  that,  he  kept  his  lamb  and 
cared  for  her  and  her  young.  The  clip  of  wool  and  the 
natural  increase  from  year  to  year,  were  saved  in  like  man- 
ner, till  he  came  into  possession  of  a  valuable  flock.  In 
due  time  he  sold  the  flock,  and  with  the  avails  commenced 
business  as  a  merchant.  Maintaining  still  the  habit  of  his 
youth,  he  labored  diligently,  and  saving  the  profits,  stead- 
ily added  to  his  capital,  till  he  stood  in  the  foremost 
rank  of  the  merchant  princes  of  New  York,  using  avast 
capital  to  combine  the  industries  of  two  continents.  The 
lamb,  the  first  fruit  of  his  labor,  saved,  was  the  beginning 
of  his  capital — the  nucleus  of  his  subsequent  fortune. 


CAPITAL.  75 

Such  is  universally  the  origin  and  the  growth  of  capital. 
It  begins  in  saving  and  grows  by  the  continued  exercise  of 
industry  and  frugality.  Labor  produces  wealth.  That 
portion  of  wealth  which  is  saved  from  consumption  for 
immediate  gratification  and  appropriated  to  increase  future 
products,  is  capital.  The  term  can  properly  be  applied  to 
nothing  else. 

Even  the  savage  will  spend  some  labor  in  making  a 
bow  and  arrows  that  he  may  obtain  larger  returns  from 
hunting.  But  he  accumulates  little  or  no  capital  beyond 
this,  simply  because  he  is  indolent,  thriftless  and  self-in- 
dulgent. He  will  work  only  when  the  necessity  of  the 
hour  compels  him  to  do  so.  He  consumes  the  fruit  of  his 
labor  at  once,  on  present  gratification,  reckless  of  future 
needs.  His  first  step  toward  civilization  is  to  learn  fore- 
thought and  self-denial — a  hard  lesson  always  with  most 
civilized  men,  as  well  as  with  savages.  The  hardest  thing 
about  it  is  to  make  a  beginning.  The  first  step  taken, 
there  is  a  joy  in  conscious  possession  and  a  hope  of  accumu- 
lating more  which  give  zest  to  further  effort  till  the  exer- 
cise grows  into  a  habit  and  sometimes  into  a  morbid  pas- 
sion. To  provide  facilities  for  guarding  and  utilizing  the 
smallest  savings  and  to  encourage  all  to  exercise  self-restraint 
and  forethought  with  reference  to  a  future  good,  are  im- 
portant means  for  increasing  capital  and  enlarging  the 
production  of  wealth. 

But  we  need  to  emphasize  this  principle  in  one  aspect 
of  it.  Many  are  disposed  to  think  of  Labor  and  Capital 
as  things  quite  diverse  in  their  nature  and  necessarily  an- 
tagonistical  in  their  respective  interests.  But  as  we  see, 
the  truth  is  that  capital  is  nothing  but  past  labor  embodied 
and  reserved  for  present  labor  to  work  with.  They  are 
indispensable  to  each  other,  and  in  the  processes  of  pro- 
duction must  always  combine  for  a  common  end.  What- 
ever injures  either  works  a  common  damage — whatever  in- 


76  PRODUCTION. 

creases  the  efficiency  of  either  works  a  common  benefit. 
When  the  representatives  of  these  two  natural  partners  in 
production  are  arrayed  against  each  other,  there  must  be 
something  radically  false  and  wrong  in  prevalent  popular 
sentiment,  or  in  the  social  organization. 

Forms  of  Capital. — The  products  of  previous  labor 
appear  as  capital  in  four  distinct  forms. 

1.  In  the  form  of  Materials  to  which  present  labor  is  to 
be  applied.     The  farmer  must  have  seed,  manure,  breeding 
animals,  etc.,  which  by  labor  must  be  put  into  fit  condi- 
tions for  the  processes  of  Transmutation  to  produce  in- 
crease.    The   manufacturer    must  have   lumber,    cotton, 
iron,  wool,  leather,  etc.,  which  labor  shall  Transform  into 
articles  adapted  to  men's  comfort  and  gratification.     The 
merchant's   materials  are   the  goods  which  make  up  his 
stock,  by    Transportation   to  be  brought,  with  increased 
value,  within  convenient  reach  of  those  who  desire  them. 
Obviously,  all  these   things    are  the   products  of   former 
labor,  on  which  present  labor  works  to  increase  value  and 
swell  the  sum  of  wealth. 

2.  Capital  takes  the  form,  of  Implements  and  Machinery 
by  u'hich  present  labor  is  made  effective.     A  man's  hands 
and  limbs  and  muscles  alone  can  do  little  or  nothing  with 
the  materials  just  named.     The  farmer  must  have  ploughs 
and  carts,  divers  tools,  machines,   working  animals,  etc. 
In  this  category  also  must  be  included  the  land,  which  is 
his  great  instrument  of  production.     The  mechanic  must 
have  axes,  ploughs,  hammers,  a  full  chest  of  tools,  and  the 
manufacturer,  engines  to  create  momentum  and  ingenious 
and  complicated  machines  for  directing  it  in  adjustment  to 
the  materials  employed  and  the  articles  to  be  produced.    To 
this  division  belong  also  the  teamster's  wagon,  the  mer- 
chant's ship,  the  entire  structure  and  rolling-stock  of  the 
railway  company,  and  whatever  facilitates  the  transport*- 


FORMS   OF  CAPITAL.  77 

tion  of  goods,  their  exhibition  for  sale  and  the  financial 
negotiations  of  every  sort  incident  to  the  transfer  of  com- 
modities from  producers  to  consumers.  All  these  are  the 
products  of  past  labor,  infinitely  varied.  As  the  introduc- 
tion of  natural  agents  and  division  of  labor  to  increase  pro- 
ductiveness is  extended,  the  amount  of  capital  employed  in 
this  form  is  increased,  and  production  in  almost  all  de- 
partments is  thrown  into  large  establishments.  The 
power-loom  makes  one  man's  labor  equal  to  that  of  ten 
with  the  old  hand-loom,  and  hence  the  independent  weaver 
has  no  chance  in  competition  with  the  great  factory. 

3.  Capital  takes  the  form  of  Means  of  Sustenance  for 
laborers.     Present  labor  does  not  yield  immediately  the 
food  and  clothing  necessary  to   keep  the  laborer  alive. 
The  crops  of  last  year  must  provide  for  the  support  of  the 
farmer  and  his  help,  while  this  year's  crops  are  maturing. 
Out  of  the  proceeds  of  previous  industry,  both  the  manu- 
facturer and  the  merchant  must  furnish  present  means  of 
living  for  all  in  their  employ.     Under  this  head  must  be 
embraced  therefore,  the  houses  and  all  the  various  kinds 
of  clothing  and  food  necessary  to  protect  and  sustain  men 
while  at  work,  and  to  provide  for  the  comfort  of  their  fami- 
lies.    We  can  suppose  an  establishment,  set  up  complete 
in  itself,  so  that  tenements  and  rations  of  food  and  cloth- 
ing are  directly  supplied  to  those  who  carry  on  its  opera- 
tions.    But  ordinarily  these  items  are  provided  for  in  de- 
tail by  the  laborers  themselves  out  of  their  wages.     Nev- 
ertheless, the  fund  for  the  payment  of  wages  is  an  essential 
part  of  the  capital  and  comes  always  from  the  proceeds  of 
previous  labor.     If,  as  is  often  the  case,  by  the  use  of  credit, 
the  product  of  present  labor  is  anticipated  for  these  pur- 
poses, the  fact  is  still  the  same.     What  is  actually  con- 
sumed to  sustain  the  workmen  is  the  fruit  of  previous  labor 
borrowed  for  the  time. 

4.  For  a  longer  or  shorter  period,  as  the  process  of  pro- 


78  PRODUCTION. 

duction  goes  on,  more  or  less  of  Capital  takes  the  form  of 
Finished  Products,  waiting  for  a  market.  The  process  of 
production  is  not  completed  till  the  products  pass  out  of 
the  producer's  hands.  Commonly,  the  farmer  will  find  it 
for  his  convenience  or  advantage  not  to  dispose  of  his  crop 
as  soon  as  it  is  gathered.  While  he  holds  it  back  from 
sale,  it  is  capital  in  his  hands,  just  as  truly  as  his  barns 
and  tools  are.  Sometimes  business  is  so  active  that  a  man- 
ufacturer's orders  will  be  in  advance  of  his  production,  but 
oftener  he  must  hold  a  portion  of  his  products  waiting 
orders.  It  would  be  bad  economy  to  suspend  operations 
and  keep  both  labor  and  capital,  in  other  forms,  idle  till  a 
purchaser  appears,  when  there  is  a  tolerable  certainty  that 
the  product  will  in  due  time  find  a  market.  Therefore, 
in  estimating  the  amount  of  capital  required  to  carry  on 
any  line  of  productive  industry,  some  allowance  must  be 
made  for  the  value  of  the  products  which  must  thus  be 
carried  for  a  time. 

In  some  or  all  of  these  four  forms,  all  working  capital 
exists  ;  and  in  civilized  society,  no  kind  of  production  can 
go  on  without  something  in  these  forms  as  capital.  Even 
the  wood-chopper  must  have  his  axe,  the  clothes  he  wears 
and  something  to  eat  for  the  day,  all  the  fruit  of  previous 
labor,  before  he  can  go  forth  to  his  simple  work.  The 
blacksmith  who  works  alone,  capitalist  and  laborer,  both 
in  one,  must  have  some  iron  for  material,  forge  and  anvil, 
hammer  and  tongs  for  instruments,  a  home  for  his  shelter, 
bread  and  meat  for  food,  and  a  few  finished  horse-shoes 
hanging  in  his  window  ready  for  the  first  call.  So  like- 
wise, the  millions  of  capital  invested  in  the  great  Pacific 
mills  of  Lawrence  may  be  all  resolved  into  these  four  forms, 
or  temporarily,  it  may  be,  their  money-representative. 

Banking  capital  will  be  considered  at  length  in  another 
connection.  Since  much  of  it  is  directly  concerned  in 
production,  however,  it  may  relieve  a  question  arising  in 


CONSUMPTION  OF  CAPITAL.  7^ 

some  mind,  to  say  a  few  words  concerning  it  here.  A 
bank  is  simply  a  credit-agency.  When  a  manufacturer  is 
out  of  cotton,  or  wants  a  new  engine,  or  lacks  means  for 
the  sustenance  of  his  employes,  he  might  borrow  what 
he  needs  directly  of  the  cotton-broker,  or  of  the  machinist 
or  of  the  farmer,  but  it  is  often  more  convenient  to 
borrow  money  of  the  bank  and  with  it  purchase  those 
things.  But  the  money  is  exchanged  at  once  for  the 
things  wanted,  and  so  its  value  really  goes  into  production 
in  one  or  other  of  the  forms  named.  Then  the  note  left 
at  the  bank  means  that  so  much  of  the  capital  as  is  thus 
borrowed,  belongs  not  to  the  manufacturer  but  to  the 
banking  company.  So  far  as  the  capital  of  the  bank  is 
represented  by  such  notes,  it  is  employed  in  production  in 
the  forms  mentioned ;  and  the  bank  as  a  credit-agency 
simply  effects  a  partnership  of  different  persons  for  pro- 
ducing certain  articles.  The  act  of  borrowing  and  lending 
has  added  nothing  to  the  sum  total  of  capital.  It  ha,s  only 
served  to  distribute  existing  capital  for  profitable  use. 
Banks,  therefore,  are  store-houses  for  the  safe  keeping  and 
ready  distribution  of  money,  the  instrument  of  exchange. 
Their  capital  renders  an  important  service  to  productive 
industry  through  its  entire  range,  and  really  comprises  the 
greater  part  of  the  active  productive  capital  of  a  commu- 
nity which  exists  in  the  form  of  money.  Yet  as  money,  it 
is  a  simple  instrument,  and  belongs  to  our  second  division, 
just  as  a  wagon  or  a  plough  does. 

The  Consumption  of  Capital.— According  to  our 
definition,  capital  is  wealth  set  apart  to  be  destroyed  for 
the  production  of  more  wealth.  "  Except  a  corn  of  wheat 
fall  into  the  ground  and  die.,  it  abideth  alone,  but  if  it  die, 
it  bringeth  forth  much  fruit."  So,  the  great  teacher, 
Jesus,  stated  a  fundamental  principle  of  Political  Economy. 
Labor  applied  to  capital  destroys  value  of  one  kind,  in 


80  PRODUCTION". 

order  to  bring  forth  a  superior  value  of  another  kind.  In 
the  process  of  production,  this  change  passes  upon  capital 
in  each  of  its  forms.  The  materials  are  immediately  con- 
sumed. The  seed-corn  dies  and  the  cotton  is  destroyed  as 
cotton-wool,  when  it  enters  into  the  fabric  of  cloth.  By 
use,  the  instruments  slowly  but  surely  wear  away  and  go 
to  decay.  Food  is  rapidly  consumed,  clothing  more  gradu- 
ally, and  more  slowly  still,  the  house  which  gives  shelter  ; 
but  on  all,  the  changes  are  in  one  direction,  toward  destruc- 
tion. The  finished  product  too,  is  disposed  of  to  others 
and  so  is  lost  to  the  producer,  to  appear  again  in  new  ma- 
terials, new  implements,  new  means  of  subsistence  and 
new  products. 

Thus,  under  the  application  of  labor,  capital  is  under- 
going perpetual  changes  which  involve  the  destruction 
of  value.  But  these  changes  are  guided  by  the  purpose, 
through  that  destruction,  to  bring  forth  products  of  greater 
value*  If  the  labor  be  skillfully  directed,  the  product  will 
have  a  value  sufficient  to  replace  the  capital,  that  is,  all 
the  materials  destroyed,  the  implements  worn  out  and  the 
means  of  sustenance  consumed,  with  a  surplus,  which  is 
profit.  This  profit  is  measured  always  by  the  difference 
between  the  value  consumed  and  the  value  produced.  It 
is  obvious,  that  it  matters  not  in  what  form  capital  re-ap- 
pears, if  it  only  re-appear  in  a  form  bearing  a  greater 
value.  The  smith  exchanges  gold  or  silver  for  coal  ;  lie 
burns  up  his  coal,  and  nothing  is  left  but  ashes.  But  it 
has  produced  an  invisible  substance,  called  caloric,  by 
'means  of  which  he  has  been  able  to  give  such  an  increased 
value  to  iron,  as  will  not  only  replace  his  gold  and  silver 
but  also  the  iron  itself,  and  will  also  pay  him  for  his  labor. 
The  farmer  exchanges  his  gold  or  silver  for  manure,  but 
this  manure  will  so  increase  his  harvest,  that  he  will  be 
able  to  replace  his  gold  and  silver,  and  also  be  abundantly 
repaid  for  his  labor.  The  principle  is  the  same  in  all  cases 


PRODUCTIVE  AND   UNPRODUCTIVE   CAPITAL.  81 

of  change  of  capital.  It  mutters  not  into  what  we  change 
our  capital,  nor  how  valuable  the  substance  may  be  that  is 
exchanged,  if  we  only  receive  in  return  a  greater  amount 
of  value,  or  that  which  will  procure  for  us  a  greater  amount 
of  objects  of  desire. 

We  see  hence  in  what  manner  nations  and  individuals 
grow  rich.  It  is  by  uniting  the  industry  of  this  year  to  the 
capital  of  last  year,  and  by  this  process  creating  an  augmen- 
tation of  capital.  This  augmentation  will  be  either  greater 
or  less,  in  proportion  as  our  industry  has  been  successful 
in  giving  additional  value  to  that  value  which  previously 
existed.  If  we  destroy  a  value  and  produce  another  only 
equal  to  it,  we  lose  our  labor.  If  we  destroy  a  value  and 
reproduce  nothing,  we  lose  both  labor  and  capital.  It  is 
only  as  the  value  created  is  superior  to  the  value  of  labor 
and  capital  consumed,  that  we  are  enriched.  Hence  we 
see  that  the  rule  of  economy  in  the  use  of  capital  is  to  con- 
sume as  little  as  possible  for  a  given  result,  and  out  of  a 
given  consumption  to  bring  the  largest  possible  product. 
The  ever  recurring  problem  is  how  to  consume  less  and  to 
produce  more. 

Productive  and  Unproductive  Capital. — Care- 
ful adherence  to  our  definition,  in  great  measure  does 
away  with  this  distinction  which  many  writers  make  promi- 
nent. By  our  definition,  capital  is  meant  to  be  always 
productive,  and  wealth  unproductive  is  not  capital.  But 
occasionally,  through  mistaken  application,  capital  is  in- 
volved in  unprofitable  investment,  as  in  experimental 
machinery  found  unsuitable  for  its  purpose,  or  in  the 
grading  of  a  line  of  railway,  afterward  abandoned.  A 
financial  revulsion  may  compel  the  suspension  of  business 
so  that  great  factories  must  stand  idle,  or  it  may  produce 
a  stagnation  of  trade,  such  that  large  stocks  of  goods  must 
be  held  for  many  months  unsalable.  A  great  railway,  af tex 


82  PBODUCTIOtf. 

large  outlays  for  its  construction,  may  have  business  enough 
barely  to  meet  its  running  expenses  and  repairs,  yielding 
no  returns  for  the  capital.  In  these  cases,  it  may  be  said 
that  for  the  time  capital  is  unproductive.  But  as  soon  as 
it  appears  clearly  that  the  investment  is  unprofitable,  so 
much  of  the  capital  as  can  be  saved,  will  be  withdrawn  and 
applied  to  some  other  mode  of  production.  The  rest  must 
be  set  down  as  lost  and  is  no  longer  capital. 

Many  persons  who  have  been  induced  to  furnish  means 
for  constructing  a  railway  to  run  near  their  property,  thus 
becoming  stockholders  in  the  company,  have  lost  the  capi- 
tal thus  invested,  so  far  as  dividends  are  concerned,  per- 
haps the  entire  railway  property  has  passed  into  the  hands 
of  bondholders,  beyond  recall.  Yet  they  may  have  been 
fully  compensated  by  the  increased  facilities  for  business, 
and  the  enhanced  value  of  their  property  which  the  road 
has  secured.  In  this  case,  their  stock-investment  is  un- 
productive, utterly  lost  perhaps,  yet  the  capital  put  in  is 
still  there,  productive,  as  it  favors  every  branch  of  industry 
in  the  community,  their  own  with  the  rest.  The  greater 
hardship  falls  on  those  who  have  put  their  means  into 
the  stock  without  a  chance  to  share  in  the  benefit  of  the 
improvement.  To  them  their  capital  is  simply  lost, 
though  it  is  still  aiding  the  general  production  of  the 
country. 

While  capital  is  unproductive,  it  may  be  considered  as 
losing  annually  its  ordinary  rate  of  interest.  Hence  every 
wise  economist  desires  to  have  the  whole  of  his  capital  pro- 
ductively invested.  Thus  the  thrifty  farmer  will  spread 
his  manure  on  his  fields,  instead  of  leaving  it  to  waste  in 
his  farm-yard.  The  efficient  merchant  will  keep  his  ships 
moving  and  push  his  goods  off  his  hands  as  fast  as  possible. 
And  the  enterprising  manufacturer  will  be  careful  not  to 
extend  his  machinery  beyond  his  ability  to  keep  it  run- 
ning. Sound  economy  prompts  every  one  to  unite  every- 


83 

thing  which  he  can  turn  into  capital,  with  labor,  and  to 
keep  it  so  united  continually. 

Fixed  and  Circulating  Capital. — Our  statement 
of  the  forms  of  capital  simplifies  this  distinction.  Mr.  Mill 
presents  this  distinction  substantially  thus.  Circulating 
capital  fulfills  its  office  in  production,  by  a  single  use,  and 
brings  its  returns  at  once.  Fixed  capital  takes  a  perma- 
nent form,  and  fulfills  its  function  in  production  by  many 
repetitions  of  its  use,  and  gathers  its  returns  in  quotas 
spread  over  a  period  of  time.  Under  this  view,  it  is  evi- 
dent that  our  second  form  of  capital,  viz.,  implements  and 
machinery,  embraces  almost  everything  which  is  properly 
called  fixed  capital.  We  need  to  add  only  so  much  of  the 
third  form  as  is  put  into  permanent  dwellings.  All  the 
other  forms  are  circulating  capital.  Thus,  materials  are 
consumed  at  once,  and  cannot  again  render  the  same  ser- 
vice, as,  when  leather  is  transformed  into  shoes,  it  is  de- 
stroyed as  leather,  though  its  value  in  the  shoe  is  much 
enhanced.  So,  too,  the  portion  of  capital  devoted  to  the 
subsistence  of  laborers,  represented  generally  by  wages  is 
consumed  when  paid  over  to  the  laborers.  Its  service  can- 
not be  repeated.  The  wages  paid  weekly  to  the  hands  in 
a  cotton-mill  no  longer  exists  as  the  capital  of  the  company, 
though  its  value  reappears  in  the  health  and  vigor  of  the 
workmen,  and  with  some,  in  that  which  they  may  save  as 
capital  to  be  used  for  other  purposes.  In  like  manner, 
capital  in  the  form  of  goods  or  finished  products,  fulfills  its 
function  for  the  manufacturer  as  soon  as  they  find  a  pur- 
chaser, though  the  avails  may  be  applied  to  replace  mate- 
rials, wages  or  the  wear  of  machinery  in  the  same  estab- 
lishment. All  this  therefore  is  called  circulating  capital, 
though  the  name  is  not  altogether  appropriate.  On  the 
other  hand,  the  buildings,  the  machinery,  the  tools,  the 
land  and  whatever  is  put  into  its  permanent  improvement, 


84  PKODUCTION. 

ships  and  railways  are  fixed  and  durable  and  over  and  over 
again  for  years,  it  may  be  for  a  lifetime,  repeat  their  ser- 
vice, subject  only  to  gradual  decay  or  occasional  breakage. 

Economical  production  requires  that  the  single  use  of 
circulating  capital  shall  reproduce  a  value  equal  to  that  of 
the  original  expenditure,  with  something  added  for  profit. 
Fixed  capital  answers  its  purpose,  if  during  the  whole  pe- 
riod of  its  repeated  use,  it  brings  in  enough  to  pay  for  itself 
and  needed  repairs  and  a  profit  equal  to  ordinary  interest 
on  its  entire  value. 

The  line  of  distinction  between  circulating  and  fixed 
capital  cannot  be  drawn  absolutely  by  naming  commodities 
on  either  side.  A  plough  regarded  as  a  finished  product 
held  by  the  manufacturer,  or  as  a  part  of  the  stock  of  a 
dealer  in  agricultural  implements,  belongs  to  circulating 
capital.  But  as  soon  as  it  is  taken  home  for  the  farmer's 
use,  it  becomes  a  part  of  his  fixed  capital.  Just  so  it  is 
with  a  turbine  wheel  or  a  steam-engine.  We  class  either 
with  circulating  capital  while  in  the  hands  of  the  machin- 
ist, finished,  but  not  sold  ;  with  fixed  capital,  as  soon  as 
transferred  to  the  place  of  service  for  which  it  was  intended 
in  the  mill. 

As  production  increases  wealth,  the  tendency  is  always 
to  put  more  and  more  of  the  accumulating  ivealth  into  forms 
of  fixed  capital.  Men  wish  to  use  the  surplus  of  value 
gained  this  year  in  some  way  to  bring  them  a  larger  sur- 
plus next  year.  Thus  a  profitable  establishment  naturally 
expands  itself.  If  ten  thousand  dollars,  invested  in  build- 
ing and  machinery  has  yielded  a  profit  of  two  thousand — 
the  introduction  of  additional  machinery,  costing  it  may 
be,  only  two  thousand  five  hundred  dollars,  may  double 
the  product  and  the  profit.  So  it  is  in  the  unfolding  in- 
dustry of  a  new  country  or  a  young  community.  At  first 
the  amount  of  capital  is  necessarily  small.  But  as  every 
year's  production  gives  a  surplus,  more  or  less  of  that  sur- 


FIXED   AND   CIBCULAT1NG   CAPITAL.  85 

plus  will  be  put  into  machinery  for  increased  production. 
Thus  in  its  steady  increase,  capital  naturally  seeks  out  new 
methods  of  employment  in  divers  manufactures,  and  the 
manufacturing  interest  grows  as  a  tree  grows.  The  sur- 
plus of  wealth  produced,  spontaneously  seeks  investment 
as  fixed  capital.  In  their  proper  and  natural  time,  there- 
fore, manufactures  must  be  established,  and  as  that  time 
arrives,  they  will  be  established  without  the  aid  of  legisla- 
tive enactment,  and  according  to  the  very  laws  by  which 
accumulation  is  governed. 

This  tendency  to  the  increase  of  fixed  capital,  works, 
for  the  most  part,  healthily  and  advantageously  for  both  a 
particular  industry,  and  for  the  general  industry  of  the 
whole  public.  But  there  are  two  dangers  attending  it. 

1.  There  is  danger  of  over-production  of  certain  com- 
modities.    If  a  paper-mill  has  produced  fifty  thousand  dol- 
lars worth  of  paper,  and  earned  a  handsome  profit,  it  is 
very  natural  to  suppose  that  doubling  the   product   will 
double  the  profit,  especially  if  it  is  found  that  a  compara- 
tively small  addition  to  the  machinery  will  so  increase  the 
production.     But  the  market  may  not  demand  this  en- 
larged supply,  or  it  may  be  that  a  dozen  paper-manufac- 
turers will  be  thinking  and  doing  the  same  thing  at  once, 
and  what  would  have  been  advantageous  to  one,  proves 
disastrous  to  all. 

2.  There  is  danger  also,   of  a  too  sudden  and  rapid 
absorption  of  available  means  in  fixed  capital.     A  due  pro- 
portion, not  exactly  definable,  must  always  be  maintained 
between  fixed  and  circulating  capital.     If  a  manufacturing 
company  adds  largely  to  its  fixtures,  there  must  be  a  cor- 
responding increase  of  its  working  capital,  or  embarrass- 
ment and  perhaps  failure  will  follow.     The  same  thing  is 
true  of  the  general  operations  of  a  community.     It  hap- 
pens not  infrequently,  that  a  period  of  prosperous  industry 
unduly  stimulates  the  manufacturing  interest,  or  the  ship- 


86  PRODUCTION. 

ping  interest  or  the  railway  interest,  so  that  before  men 
are  aware,  a  large  portion  of  the  capital  of  a  country  is 
locked  up  in  instruments  for  increased  production,  leaving 
quite  insufficient  means  for  carrying  on  the  enlarged  opera- 
tions. Thus,  a  few  years  ago,  all  England  was  convulsed 
by  a  financial  crisis,  caused  in  a  great  degree  by  a  sudden 
and  very  rapid  absorption  of  capital  in  railways,  which 
while  they  might  ultimately  favor  the  productiveness  of  all 
industry,  could  bi'ing  in  their  returns  only  after  a  lapse  of 
time.  This  mischief  is  always  aggravated  by  any  inflation 
of  the  currency,  or  increase  of  that  which  passes  for  money. 
In  this  connection,  therefore,  it  is  to  be  observed  that 

Money,  though  circulating  more  freely  than  any  thing 
else,  must  really  be  classed  as  fixed  capital.  In  the  busi- 
ness operations  of  an  individual  or  an  incorporated  com 
pany,  some  money  is  essential.  There,  it  ordinarily  repre- 
sents circulating  capital  in  transition,  as  when  the  manu- 
facturer has  sold  his  products  and  holds  the  money  received, 
waiting  for  his  next  purchases  of  materials  or  his  next  pay- 
ment of  wages.  But,  viewed  in  its  true  nature,  with 
respect  to  its  broad,  general  function,  money  is  but  an  in- 
strument of  exchange — an  instrument,  when  genuine, 
made  of  gold  or  silver,  to  serve  a  certain  end  in  the  opera- 
tions of  industry,  just  as  an  anvil  is  made  of  iron  for  its 
specific  purpose.  The  gold  might  have  been  transformed 
into  a  watch-case  or  a  finger-ring,  for  the  gratification 
of  desire.  Instead  of  that,  it  is  turned  into  coin  and  so 
set  apart  to  serve  the  production  of  wealth  by  a  thousand 
repetitions  of  its  function  as  an  instrument  of  trade.  The 
same  coin,  say  an  eagle,  may  go  out  of  the  bank  in  the 
morning,  run  around  a  busy  circuit  and  get  back  in  the 
afternoon.  The  manufacturer,  for  examp>o,  draws  it  from 
the  bank  and  pays  his  laborer  ten  dollars  of  wages — he 
transfers  the  same  money  to  the  farmer  for  a  load  of  pota- 
toes— the  farmer  passes  it  to  the  plough-maker  for  a 


MONEY-CAPITAL.  87 

plough — he  in  turn  pays  to  to  the  hardware  merchant  for 
iron,  and  the  merchant  deposits  it  again  in  the  bank.     Dur- 
ing the  day,  it  has  represented  four  kinds  of  circulating 
capital,  carrying  each  to  its  appropriate  place,  but  it  comes 
back  to  the  bank,  just  what  it  went  out,  money,  the  same 
thing  unchanged.     It  has  rendered  important  service  in 
production,  but  its  service  is  like  that  of  a  wheel-barrow, 
which  has  transferred  to  different  parties  four  different 
loads.     The  money  could  not  do  the  work  of  the  laborer, 
the  laborer  could  not  eat  it,  the  farmer  could  not  plough 
with  it,  the  plough-maker  could  not  work  it  into  a  plough, 
and  the  merchant  could  not  store  it  with  his  goods.     But 
it  has  brought  to  each  just  what  he  needed,  and  there  it 
still  is,  in  its  proper  depository,  ready  to  repeat  like  servi- 
ces to-morrow.     We  see  then  that  real  money  is  a  part  of 
the  products  of  former  labor,  saved  and  set  apart  for  this 
service.     It  is  capital  in  the  form  of  a  permanent  instru- 
ment to  aid  production,  hence  fixed  capital.     It  is  subject 
to  slow  wear  which  must  be  replaced  by  gold  or  silver  from 
the  mines,  a  part  of  the  circulating  capital  of  the  country. 
Hence,  as  any  country  may  have  a  greater  amount  of 
fixed  capital  than  it  needs,  for  instance,  of  some  particular 
kind  of  machinery  ;  and  as,  when  this  is  the  case,  it  sends 
it  abroad,  or  in  other  words,  makes  it  an  article  of  export, 
or  changes  it  into  circulating  capital,  so  is  it  with  money. 
If  a  country  has  more  money  than  is  sufficient  to  accom- 
plish its  exchanges,  it  sends  it  abroad,  and  receives  back 
something  that  it  needs  more.     Such  is,  permanently,  the 
case  in  mining  countries  ;  and  such  is  at  times,  the  condi- 
tion of  almost  every  commercial  nation. 


CHAPTER  IX. 

CO-OPERATION  OF  LABOR  AND  CAPITAL. 

The  true  relation  of  Labor  and  Capital  is  that 
of  Partners,  Co-adjutors  for  a  common  end, — Sharers 
in  a  joint  result.  This  is  evident  from  what  has  been  said 
of  the  nature  and  function  of  each,  considered  separately. 
In  the  production  of  wealth,  each  is  necessary  to  the  other  ; 
each  is  helpless  without  the  other.  Antagonism  between 
the  representatives  of  these  two  essentials  to  the  increase 
of  wealth  is  unnatural  and  ruinous  to  the  interests  of  both. 
The  most  stalwart  and  vigorous  man  can  effect  nothing 
without  the  fruit  of  previous  labor,  that  is  capital,  in  the 
form  of  food  and  clothing,  materials  and  tools.  With 
nothing  to  live  on  and  nothing  to  work  with,  he  can  but 
pine  away  and  die.  On  the  other  hand,  warehouses  full 
of  cotton,  factories  filled  with  ingenious  machinery,  stores 
stocked  with  goods, — capital  in  whatever  form,  accumulated 
.to  whatever  extent,  can  do  nothing  to  increase  itself.  Let 
alone,  it  can  only  rot  or  rust  and  go  to  decay.  Productive 
industry  begins  with  the  hands  of  labor  laying  hold  of  the 
materials,  guiding  the  machinery,  transporting  the  goods, 
and  so  working  changes  which  impart  new  utilities,  or  in- 
crease existing  value. 

This  general  fact  is  recognized  in  many  common 
forms  of  speech.  Thus  when  industry  is  directed  to  a 
particular  employment,  the  act  is  spoken  of  as  applying 
capital  to  the  employment.  When  land  is  improved,  capi- 
tal is  applied  to  farming.  When  a  factory  is  set  up,  capi- 


CO-OPERATION   OF   LABOR   AND   CAPITAL.  89 

tal  is  invested  in  manufactures.  In  all  such  cases,  labor  is 
the  thing  really  applied,  but  the  phrase  is  very  naturally 
used,  because  it  is  understood  that  capital  is  an  indispens- 
able condition  of  the  proposed  industry.  So  we  often  meet 
with  the  expression  "the  productive  powers  of  capital." 
This  is  not  strictly  correct,  for  capital  has  in  itself  no 
power  at  all.  Really  the  only  productive  powers  are  labor 
and  the  natural  agents  which  labor  directs.  Yet  the  ex- 
pression does  not  mislead  men,  because  the  very  term  capital 
carries  with  it  the  idea  of  its  correlative  and  supposes  labor 
joined»with  it  to  make  it  productive.  The  common  sense 
of  men,  indicated  by  their  current  forms  of  language,  is 
altogether  sound  on  this  matter.  It  most  fully  recognizes 
labor  and  capital  as  the  two  necessary  and  inseparable 
factors  in  the  production  of  wealth.  It  is  pitiable  to  see 
how  often  minds  are  sophisticated  by  some  sort  of  false 
philosophy  so  as  to  lose  their  common  sense  with  respect 
to  these  things.  Here,  as  elsewhere  generally,  plain  com- 
mon sense  is  but  another  name  for  the  universal,  intuitive 
perception  and  acceptance  of  the  first  principles  of  sound 
philosophy.  Such  a  truth  is  this  of  the  essential  equality 
and  necessary  harmonious  union  of  labor  and  capital  in 
all  productive  industry. 

Abstractly  considered,  labor  and  capital  stand  toward 
each  other  on  an  Equality.  If  there  is  any  difference, 
capital  is  the  most  helpless  of  the  two.  For  it  is  nothing 
but  dead  matter,  whereas  labor  is  a  vital  force  which  can 
move  itself  and  pick  berries  and  possibly  run  down  a  rab- 
bit or  catch  a  bird  by  bare  human  hands  and  feet.  Dis- 
regarding this  difference,  we  may  say  that  as  factors  of 
production,  they  are  equal. 

For  their  Co-operation,  these  elements  meet  most 
harmoniously  in  the  same  person, — that  is,  when  the  laborer 
owns  capital  enough  to  employ  his  own  labor.  This  brings 


90  PRODUCTION. 

both  elements  under  the  control  of  one  and  the  same  will, 
to  be  governed  by  one  self-interest.  All  rivalry  and  antag- 
onism are  excluded,  and  according  to  the  measure  of  his 
capital  and  his  physical  and  mental  capacity,  the  man  will 
multiply  products. 

But  for  several  reasons,  this  adjustment  cannot  be  made 
universal. 

1.  Such  is  tlie  tendency  of  capital  to  increase  under  the 
steady  application  of  labor,  that  the  man  will  soon  find  in 
his  hands  a  surplus,  to  employ  which,  he  must  either  bring 
in  another  who  has  only  labor,  to  work  under  him,  or  lend 
it,  as  capital  to  another  independent  worker.     Thus  a  dis- 
tinction between  laborer  and  capitalist  is  sure  to  arise. 
The  only  alternatives  are  either  to  store  away  the  surplus 
as  hoarded  wealth, — not  capital, — or  to  consume  it  in  a 
more  luxurious  style  of  living,  or  to  diminish  the  amount  of 
labor,  so  as  to  avoid  the  increase  of  capital,  all  of  which 
are  against  the  dictates  of  sound  economy. 

2.  A  greater  difficulty  comes  from  the  great  diversity 
of  capacities  and  tastes  among  men.     Some  who  are  strong 
for  physical  labor,  lack  managing  skill  and  tact  in  saving, 
and  so  are  unable  to  accumulate  and  employ  capital,  acting 
independently.     Others,  peculiarly  endowed  in  these  re- 
spects, are  feeble  in  body  and  unfit  for  manual  toil.     To 
many,  labor  is  peculiarly  irksome  and  they  will  seek  exemp- 
tion from  it,  as  soon  as  their  increased  capital  enables  them 
to  do  so.     To  others  the  care  of  managing  business  is  no 
less  distasteful,  and  they  choose  to  labor  on,  passing  their 
accumulating  capital  into  other  hands. 

3.  Many  forms  of  production  of  highest  consequence  in 
civilized  society,  must  be  carried  on  in  large  establishments, 
where  are  combined  a  great  amount  of  capital  and  great 
numbers  and  divers  grades  of  laborers.     In  no  other  way 
can  the  full  advantage  from  the  use  of  natural  agents  and 
the  application  of  the  principle  of  division  of  labor  be 


CO-OPERATION  OF  LABOE  AND   CAPITAL.  91 

realized.  As  active  invention  multiplies  labor-saving  ma- 
chinery, many  of  the  common  articles  formerly  made  by 
hand,  by  members  of  the  household,  have  now  to  be  pro- 
duced on  a  large  scale,  involving  a  company  of  capitalists 
who  employ  a  company  of  laborers. 

These  causes  tend  to  separate  the  two  elements,  so  that 
capital  falls  to  some  and  labor  to  others.  The  abstract 
equality  and  mutual  dependence  just  spoken  of  is  thus  dis- 
turbed. As  the  parties  meet  to  enter  into  contract  with 
each  other,  the  capitalist  has  the  advantage,  because  he  can 
live  on  his  capital  without  labor,  but  the  laborer  must  earn 
the  necessities  of  life  by  working  with  somebody's  capital. 
Under  the  sway  of  short-sighted  self-interest,  capitalists 
are  tempted  to  use  this  advantage  to  dictate  terms  and 
oppress  laborers.  We  say  short-sighted  self-interest,  for  in 
the  long  run,  and  in  the  broad  view,  such  oppression  must 
react  against  the  oppressors.  When  laborers  are  held  down 
to  starvation  wages,  capital  must  be  heavily  taxed  for  the 
support  of  paupers,  and  in  time,  there  will  surely  come  an 
insurrection  to  make  capital  insecure.  The  consciousness 
of  dependence  tends  to  make  laborers  sensitive  to  the 
least  real  wrong  and  suspicious  of  wrong  where  none  exists. 
On  the  other  hand,  where  laborers  rally  to  maintain  their 
rights,  capitalists  grow  distrustful  and  either  withdraw 
their  wealth  from  production,  or  burden  its  use  with  em- 
barrassing conditions.  Against  their  own  true  interests  on 
both  sides,  the  parties  are  thus  led  to  array  themselves 
against  each  other.  The  strength  of  this  tendency,  and 
the  mischiefs  flowing  from  it,  as  revealed  in  England  and 
recently  in  our  country,  demand  thoughtful  consideration. 
How  to  guard  the  rights  of  both  parties  so  that  they  shall 
be  b.ound  by  their  natural  common  interest,  in  harmonious 
union  with  each  other,  is  an  important  and  difficult  prob- 
lem of  political  economy.  Without  attempting  here,  a 
full  discussion  of  that  problem,  we  may  state  certain 


92  PRODUCTION. 

Conditions  and  Circumstances  which  favor 
the  harmonious  Union  and  effective  Co-opera- 
tion of  Labor  and  Capital. 

1.  A  general  Distribution  of  Capital  is  a  matter 
of  prime  importance.  By  this  is  meant  such  a  condition 
of  things  that  the  capital  of  a  country  shall  be  in  many 
hands  rather  than  few, — that  laborers  themselves  shall  have, 
or  be  encouraged  to  secure  some  capital.  So  distributed, 
capital  is  most  closely  joined  with  labor,  and  is  used  most 
economically.  At  the  same  time,  labor  is  stimulated  to 
its  highest  effectiveness.  Very  many  persons  are  both 
capitalists  and  laborers,  in  a  position  to  see  most  clearly  the 
common  interests,  as  requiring  mutual  good-will  and 
hearty  union.  They  will  therefore,  be  inclined  to  oppose 
the  drawing  of  lines  to  separate  these  classes,  and  all  influ- 
ences which  tend  to  produce  antagonism  between  them. 
Some  concentration  of  capital  is,  as  we  have  already  seen, 
essential  to  the  most  effective  division  of  labor.  But 
beyond  this  necessity,  the  great  aggregation  of  capital  in 
the  possession  of  individuals,  is  disadvantageous  because  it 
leads  inevitably  to  despottc  assumption  on  the  one  hand, 
and  to  envyings  and  jealousies  on  the  other. 

Such  a  general  distribution  of  capital  is  opposed  by 
anything  in  the  social  organization  ivhick  creates  or  sustains 
privileged  classes.  No  aristocracy  can  long  be  maintained 
without  some  provision  securing  to  a  class  special  advan- 
tages for  the  possession  and  transmission  of  property.  In 
the  history  of  nations,  we  find  the  most  common  form  of 
such  provision  to  be  by  restrictions  on  the  division  or  dis- 
posal of  lands.  Whatever  also,  in  legislation  or  usage  by 
the  easy  allowance  of  public  opinion  tends  to  create  or 
maintain  monopolies,  opposes  the  general  distribution  of 
capital.  If  no  hindrances  are  in  the  way  and  no  special 
protection  is  accorded,  the  natural  working  of  things  on 


93 

principles  of  self-interest  will  promote  a  general  distribu- 
tion of  capital. 

Tli is  end  may  be  promoted  by  all  measures  which  en- 
courage saving,  especially  on  the  part  of  laborers.  Savings- 
batiks,  established  on  a  sound  basis  and  honestly  managed, 
such  as  New  England  has  had  and  has  profited  by  for 
more  than  a  century,  or  perhaps  better  still,  a  government 
savings-bank,  through  a  modification  of  the  postal  order 
system,  on  the  plan  now  in  successful  operation  in  England, 
render  valuable  service  in  this  matter.  Moreover,  the 
stock  of  large  manufacturing  companies  may  be  divided 
into  small  shares  and  brought  within  the  reach  of  the  oper- 
atives, so  as  to  induce  them  by  their  savings  to  become 
owners  in  part  of  the  capital,  and  so  to  be  entitled  to  divi- 
dends in  addition  to  their  wages.  Such  measures  elevate 
labor  and  give  it  independence,  and  also  increase  capital 
by  devoting  much  wealth,  that  would  be  otherwise  wasted, 
to  production.  .Capital  thus  distributed  stimulates  energy, 
develops  talent,  comes  closer  to  labor,  better  defends 
itself  and  superintends  operations  by  having  in  each  work- 
man an  interested  observer  of  both  his  own  and  others' 
work. 

2.  The  Ratio  of  the  amount  of  Capital  to  the 
number  of  Laborers  and  the  ratio  of  the  Increase 
of  Capital  to  the  Increase  of  Laborers  must  have 
an  important  bearing  on  the  co-operation  of  these  two 
forces.  We  cannot  too  often  reiterate,  nor  too  strongly 
emphasize  the  fundamental  principle  that  Industry  is  lim- 
ited by  Capital,  and  that  every  increase  of  capital  demands 
increase  of  labor.  When  the  number  of  laborers  is  great 
and  the  amount  of  capital  small,  there  will  be  a  competi- 
tion of  laborers  for  work.  This  tends  at  once  to  reduce 
the  rate  of  wages  and  some  will  fail  to  obtain  employment 
and  others  will  receive  barely  enough  to  avoid  starvation. 


94  PKODUCTIOX. 

There  is  consequently  great  distress,  general  discontent, 
and  often  violent  insurrection  which  aggravates  the  whole 
difficulty: 

On  the  contrary,  when  the  number  of  laborers  is  small 
and  the  amount  of  capital  great,  there  will  be  competition 
among  capitalists  for  labor,  and  the  wages  or  price  of  labor 
will  rise.  This  may  so  enhance  the  cost  of  products,  as  to 
make  industry  in  certain  lines  of  production  unprofitable. 
Hence  capital  must  wait,  unemployed,  for  an  inflow  of 
laborers.  This  difficulty  is  more  easily  relieved  than  the 
other,  because  capital  invites  labor  to  itself,  and  a  brief  time 
will  ordinarily  adjust  the  proportions,  so  that  the  two  ele- 
ments will  work  harmoniously  together  for  their  common 
advantage. 

No  universal  rule  can  be  given  for  this  proportion.  It 
will  vary  somewhat  according  to  the  circumstances  of  each 
country  and  the  spirit  of  its  people.  The  age  of  a  coun- 
try, its  natural  advantages  and  the  general  occupations  of 
its  people  must  be  taken  into  account.  In  a  newly  settled 
country  of  great  fertility,  avast  amount  of  land  is  open  for 
cultivation  which  will  yield  rich  returns  for  labor  expended 
on  it.  This  of  itself  may  serve  as  a  peculiar  stimulus  to 
labor.  But  this  advantage  may  be  balanced  by  distance 
from  the  world's  market,  and  consequent  cost  of  transpor- 
tation and  difficulty  of  obtaining  other  objects  of  desire 
than  the  fruits  of  husbandry.  Generally,  however,  in  a 
new  country,  occupied  by  a  thrifty  people,  capital  increases 
faster  than  labor,  and  there  we  see  always  the  highest  stim- 
ulus to  production  and  the  most  effective  cooperation  of 
labor  and  capital. 

For  all  countries  and  for  all  people,  the  thing  to  be 
desired  and  aimed  at  is  that  there  shall  be  labor  enough  to 
use  the  capital  and  capital  enough  to  employ  the  labor,  giv- 
ing it  due  reward.  A  perfect  balance  is  perhaps  nowhere 
realized,  and  if  once  attained  it  is  liable  to  be  disturbed. 


CO-OPERATION   OF  LABOR  AND   CAPITAL.  95 

Yet,  if  labor  and  capital  are  free,  the  flow  of  each,  under 
the  law  of  competition,  toward  an  equilibrium,  is  as  natu- 
ral as  that  of  the  waters  of  the  ocean  under  the  action  of 
gravitation.  In  the  order  of  nature,  undisturbed,  there  is 
provision  for  the  steady  increase  of  both  capital  and  labor, 
in  something  like  a  definite  proportion.  There  is  no  danger 
of  a  surplus  of  either  for  the  whole  world,  nor  for  any  one 
country,  if  only  the  passage  is  open  and  free  for  the  out- 
flow and  inflow  of  both  and  of  their  joint  products. 

In  this  view,  it  is  evident  that  the  accumulation  of 
capital  is  more  for  the  advantage  of  the  laborer  than  of  the 
capitalist.  The  greater  the  ratio  of  capital  to  labor,  the 
greater  will  be  the  share  of  the  product  that  falls  to  the 
laborer.  The  greater  the  ratio  of  labor  to  capital,  the 
greater  will  be  the  share  of  the  product  that  falls  to  the 
capitalist.  Hence,  the  laboring  classes  are  really  more 
interested  in  the  increase  of  the  capital  of  a  country,  than 
the  wealthy  classes.  When  one  class  of  the  community 
repine  at  the  prosperity  of  another  class,  they  repine  at 
their  own  mercies,  and  the  means  of  increasing  their  own 
rate  of  compensation. 

It  is  however  evident,  that  the  accumulation  of  capital 
in  any  nation  does  not  depend  simply  upon  its  annual 
production,  but  upon  the  proportion  that  its  annual  pro- 
duction bears  to  its  annual  expenditure.  A  country  that 
annually  expends  all  its  production,  let  it  produce  ever  so 
much,  will  never  increase  its  capital.  A  country  that  pro- 
duces ever  so  little,  if  it  annually  expend  somewhat  less 
than  its  revenue  will  be  accumulating  something  ;  and 
must  in  progress  of  time  become  richer  than  its  more 
highly  favored  neighbor.  This  explains  the  fact  that  the 
countries  blessed  with  the  richest  soils  and  the  greatest 
natural  advantages,  have  not  generally  become  the  richest. 
The  result  has  within  moderate  limits  been  almost  the 
reverse. 


96  PKODUCTIQN. 

Hence  we  see  that  every  mode  of  unnecessary  expendi- 
ture, whether  individual  or  national,  by  diminishing  the 
annual  accumulation  of  capital,  tends  directly  to  lower  the 
rate  of  wages,  and  thus  injure  the  condition  of  the  labor- 
ing classes.  The  millions  which  are  wasted  and  destroyed 
by  intemperance,  if  saved,  would  add  to  the  capital  of  a 
country,  and  thus  increase  the  demand  for  labor.  All 
unnecessary  expenditure  for  the  maintenance  of  civil  gov- 
ernment, has  of  course,  the  same  tendency.  Hence  arises 
also,  one  of  the  most  afflicting  consequences  of  war.  Had 
the  almost  incalculable  sums  which  Great  Britain  has  ex- 
pended in  wars  for  the  last  hundred  years,  been  added  to 
her  operative  capital,  and  but  for  these  wars,  it  would 
have  been  so  added,  all  her  inhabitants  would  have  found 
at  all  times  abundant  employment,  and  at  a  rate  of  wages 
which  would  by  this  time,  have  banished  almost  the  recol- 
lection of  poverty  from  her  shores. 

3.  The  happy  co-operation  of  labor  and  capi- 
tal depends  on  the  certainty  that  each  shall 
have  its  just  reward. — Nobody  questions  the  right  of 
the  laborer  to  the  fruit  of  his  toil.  The  expectation  of 
enjoying  some  advantage  thereby  prompts  the  exertion  of 
his  powers,  and  the  common  sense  of  men  affirms  that  he 
ought  not  to  be  deprived  of  that  advantage.  The  right  of' 
capital  to  its  reward,  though  questioned  by  not  a  few, 
stands  on  the  same  basis  of  intrinsic  justice.  Capital  is 
but  the  fruit  of  previous  labor  saved.  The  labor  that  pro- 
duced it  was  like  present  labor,  a  cross,  endured  in  expec- 
tation of  its  acquisition  as  a  reward.  To  that  was  added 
the  cross  of  self-denial,  by  which  it  was  saved  instead  of 
being  expended  on  some  immediate  gratification.  On  both 
grounds  its  owner  justly  asks  that  he  shall  receive  some 
compensation  for  its  use.  Since  labor  can  earn  nothing 
without  capital  to  work  with,  and  capital  can  yield  no 


DIVISION   OF   PliOPERTY.  97 

revenue  unless  labor  be  applied  to  it  in  actual  use,  each  is 
entitled  to  its  share  of  the  product  of  their  union.  Noth- 
ing else  so  disables  industry  and  hinders  the  growth  of 
wealth  as  the  selfish  greed  which  would  rob  either  partner 
of  his  reward  or  make  it  insecure.  To  ensure  to  each  this 
certainty  of  reward,  several  things  are  essential. 

a.  There  must  be  Division  of  Property — personal  own- 
ership in  everything  that  can  by  labor  be  made  an  object 
of  value,  and  appropriated.  Without  this  capital  cannot 
be.  On  common  property,  men  will  not  labor  except  on 
the  compulsion  of  force  or  stern  necessity.  When  prop- 
erty is  held  in  common,  every  individual  of  the  society  to 
which  it  belongs,  has  an  equal,  but  an  undivided  and  inde- 
termined"  right  to  his  portion  of  the  revenue.  Hence, 
every  one  is  at  liberty  to  take  what  he  will  and  as  much 
as  he  will,  and  to  labor  as  much  or  as  little  as  he  pleases. 
There  is  therefore,  under  such  an  arrangement,  no  con- 
nection between  labor  and  the  rewards  of  labor.  There  is 
rather  a  premium  for  indolence  than  for  industry.  In 
such  a  case  there  will  be  no  regular  labor,  if  indeed  there 
be  any  labor  at  all ;  and  what  is  still  worse,  even  the  scanty 
and  spontaneous  productions  of  the  earth  will  frequently 
be  gathered  before  they  are  ripe,  since  every  one  fears 
that,  if  he  do  not  seize  them  now,  he  will  never  enjoy  them 
at  all.  The  forest  of  an  Indian  tribe  is  held  in  common 
and  a  few  hundred  families  barely  subsist  upon  a  territory 
which,  were  it  divided  and  tilled,  would  support  a  million 
of  civilized  men.  The  little  that  it  produces  to  him  is  the 
result  of  division  of  property.  His  bow  and  arrows,  his 
wigwam,  and  his  clothing  are  acknowledged  to  be,  in  the 
fullest  sense,  his  own.  AVere  these  to  be  held,  like  his 
land  in  common,  the  whole  race  would  very  soon  perish 
from  want  of  the  necessaries  of  life. 

On  the  contrary,  as  soon  as  land  with  all  other  prop- 
erty is  divided,  a  motive  exists  for  regular  and  voluntary 
5 


98  PEODUCTION. 

labor,  inasmuch  as  the  individual  knows  that  he,  and  not 
his  indolent  neighbor,  will  reap  the  fruit  of  his  toil. 
Henceforth  he  begins  to  create  a  regular  supply  of  annual 
product.  With  increased  skill,  this  annual  product  in- 
creases, and  he  begins  to  convert  it  into  fixed  capital. 
Every  accession  to  his  fixed  capital  renders  his  labor  more 
productive,  and  hence  it  creates  a  stronger  stimulus  to 
increased  exertion.  With  increased  exertion,  his  annual 
capital  is  increased,  and  a  greater  surplus  remains  to  be 
changed  into  fixed  capital.  Increased  production  stimu- 
lates industry,  and  increased  industry  results  in  more 
abundant  production.  Thus  division  of  property,  or  the 
appropriation  to  each  of  his  particular  portion  of  that  which 
God  has  given  to  us  all,  lies  at  the  foundation  of  all  accumu- 
lation of  wealth,  and  of  all  progress  in  civilization. 

It  is  for  this  reason  that  property  held  in  common  is  so 
generally  prejudicial  to  the  best  interests  of  a  society.  A 
common,  where  every  one  at  will  may  pasture  his  cattle, 
and  a  forest,  from  which  every  inhabitant  may  procure  his 
fuel,  are  encouragements  to  indolence,  and  serve  to  keep  a 
community  poor.  Thus,  also,  funds  left  at  large  for  the 
support  of  the  poor,  on  which  every  one  is  supposed  to 
have  an  equal  right  to  draw,  have  generally  been  found  to 
foster  indolence.  Poor  laws,  in  so  far  as  they  are  to  be 
considered  a  fund  for  this  purpose,  have  the  same  sort  of 
injurious  tendency.  Societies  like  those  of  the  Shakers  or 
the  German  Am-a-na,  organized  for  a  sort  of  common  fam- 
ily life  with  common  property,  seem  to  prosper.  In  reality, 
however,  these  are  only  joint-stock  companies,  holding 
and  managing  property  in  a  peculiar  way.  Their  suc- 
cess, like  that  of  any  other  corporation,  depends  on  the 
fact  that  the  principle  of  division  of  property  prevails  all 
around  them  and  that  they  are  subject  to  its  law.  Each 
member  simply  merges  his  individual  interest  in  that  of 
the  community  and  is  represented  in  the  corporation, 


SECURITY  TO   PROPERTY.  99 

which,  in  the  eye  of  the  law,  is  a  personality  with  distinct 
property-rights. 

b.  There  must  be  also  Security  to  all  Property-rights  by 
both  prevalent  moral  sentiment  and  just  laws  equitably 
applied  and  faithfully  executed.  As  no  one  will  labor, 
unless  he  knows  that  he  shall  reap  the  fruit  of  his  toil,  so 
no  one  will  take  the  pains  to  reap  the  fruit  of  his  toil, 
unless  he  also  know  that  he  will  be  able  to  hold  it,  and 
appropriate  it  to  the  purposes  of  his  own  gratification. 
And  hence,  we  see  that  human  labor  is  exerted  in  different 
countries,  very  much  in  proportion  as  the  right  of  prop- 
erty is  both  understood  and  enforced. 

The  right  of  property  may  be  violated  by  the  Indi- 
vidual or  by  Society.  It  is  violated  by  the  individual  by 
cheating,  stealing,  robbery,  and  violation  of  contracts. 
And,  universally,  just  as  these  crimes  prevail,  production 
languishes,  industry  diminishes,  and  the  richest  soil  fails 
to  support  its  few  and  impoverished  inhabitants.  Such 
was  the  case  in  Europe,  during  the  era  of  feudal  oppres- 
sion. There  was  then  no  encouragement  to  labor,  because 
no  one  knew  whether  he,  or  a  baronial  tyrant,  would  reap 
the  fruit  of  his  industry. 

Hence,  we  see  the  economical  importance  of  means 
which  shall  prevent  the  individual  violation  of  the  right 
of  property.  These  means  are  two. 

The  first  is,  the  inculcation  of  those  moral  and  reli- 
gious principles,  which  teach  men  to  respect  the  rights  of 
others  as  their  own,  that  is,  to  obey  the  law  of  reciprocity  ; 
and  which  present  the  strongest  conceivable  reasons  for  so 
doing.  This  is  the  most  certain  method  of  preventing  the 
violation  of  the  right  of  property,  inasmuch  as  it  aims  to 
eradicate  those  dispositions  of  mind  from  which  all  viola- 
tion proceeds.  It  is  also  the  cheapest,  as  it  aims  at  preven- 
tion, which  is  always  more  economical  than  cure.  It  is 
also  necessary,  inasmuch  as  good  laws  will  never  be  enacted, 


100  PRODUCTION. 

or  if  enacted  will  never  be  obeyed,  only  in  so  far  as  there 
exists  a  moral  character  in  the  community  sufficiently  pure 
to  sustain  them.  In  proportion  as  these  are  efficacious,  all 
other  means  are  needless.  Hence,  we  see  the  reason  why 
moral  and  religious  nations  grow  wealthy  so  much  more 
rapidly  than  vicious  and  irreligious  nations.  The  feeling 
of  perfect  tranquillity  and  security,  which  a  high  social 
morality  diffuses  over  a  whole  community,  is  one  of  the 
most  beneficial,  as  well  as  one  of  the  strongest  stimulants 
to  universal  industry.  This  is  one  of  the  temporal  rewards 
which  God  bestows  upon  social  virtue.  And,  inasmuch  as 
no  one  can  enjoy  this  reward,  simply  by  being  virtuous 
himself,  but  only  as  his  fellow-citizens  also  are  virtuous,  we 
see  the  indication  in  our  constitution,  that  it  is  the  duty, 
as  well  as  the  interest,  of  every  man,  to  labor  to  render 
other  men  more  virtuous. 

But  second,  inasmuch  as  all  men  are  not  influenced  in 
their  conduct  by  moral  and  religious  principles,  it  is  neces- 
sary that  aggression  be  somehow  prevented,  and  violations 
of  property,  in  so  far  as  possible,  redressed.  Hence  the 
importance  of  wholesome  and  equitable  laws,  of  an  inde- 
pendent and  firm  judiciary,  and  an  executive,  which  shall 
carry  the  decisions  of  law  faithfully  into  effect.  The  ex- 
pense necessary  for  the  most  perfect  administration  of  jus- 
tice, is  among  the  most  productive  of  all  the  expenditures 
of  society.  Good  law,  and  the  faithful  administration  of 
it,  is  always  the  cheapest  law,  and  the  cheapest  adminis- 
tration of  it.  The  interests  of  man  require  that  law 
should  be  invariably  executed,  and  that  its  sovereignty 
should,  under  all  circumstances,  be  inviolably  maintained. 

But  the  right  of  property  may  be  violated  by  Society. 
It  sometimes  happens,  that  society,  or  government,  which 
is  its  agent,  though  it  may  prevent  the  infliction  of  wrong 
by  individuals  upon  each  other,  is  by  no  means  averse  to 
inflicting  wrong  or  violating  the  right  of  individuals  itself. 


SECURITY   TO   PROPERTY.  101 

This  is  done  where  governments  seize  upon  the  property 
of  individuals  by  mere  arbitrary  act,  a  form  of  tyranny 
with  which  all  the  nations  of  Europe  were,  of  old,  too  well 
acquainted.  It  is  also  done  by  unjust  legislation  ;  that  is, 
when  legislators,  how  well  soever  chosen,  enact  unjust 
laws,  by  which  the  property  of  a  part  or  of  the  whole  is 
unjustly  taken  away,  or  what  is  the  same  thing,  subjected 
to  oppressive  taxation. 

Of  all  the  destructive  agencies  which  can  be  brought 
to  bear  upon  production,  by  far  the  most  fatal  is  public 
oppression.  It  drinks  up  the  spirit  of  a  people,  by  inflict- 
ing wrong  through  means  of  an  agency  which  was  created 
for  the  sole  purpose  of  preventing  wrong  ;  and  which  was 
intended  to  be  the  ultimate  and  faithful  refuge  of  the 
friendless.  When  the  antidote  to  evil  becomes  the  source 
of  evil,  what  hope  for  man  is  left?  When  society  itself 
sets  the  example  of  peculation,  what  shall  prevent  the  in- 
dividuals of  the  society  from  imitating  that  example  ? 
Hence,  public  injustice  is  always  the  prolific  parent  of 
private  violence.  The  result  is  that  capital  emigrates, 
production  ceases,  and  a  nation  either  sinks  down  in  hope- 
less despondence  ;  or  else  the  people,  harassed  beyond  en- 
durance and  believing  that  their  condition  cannot  be  made 
worse  by  any  change,  rush  into  all  the  horrors  of  civil 
war  ;  the  social  elements  are  dissolved  ;  the  sword  enters 
every  house  ;  the  holiest  ties  which  bind  men  together  are 
severed  ;  and  no  prophet  can  predict,  at  the  beginning, 
what  will  be  the  end. 

Hence  we  see  the  importance  to  the  industry  of  a  coun- 
try of  a  constitution  which  guarantees  to  the  individual 
immunity  not  only  from  private,  but  also  from  public  op- 
pression. Wherever  this  immunity  is  wanting,  the  pro- 
gress of  a  nation  in  wealth  will  be  slow.  It  is  owing  rather 
to  the  freedom  of  her  institutions  and  the  equity  of  her 
laws,  than  to  her  physical  advantages,  that  Great  Britain 


102  PRODUCTION'. 

has  so  far  outstripped  all  other  European  nations  in  the  ac- 
cumulation of  wealth,  and  in  every  thing  that  confers  social 
power;  It  is  almost  superfluous,  however,  to  add,  that  a 
free  constitution  is  of  no  value  unless  the  moral  and  intel- 
lectual character  of  a  people  be  sufficiently  elevated  to 
avail  itself  of  the  advantages  which  it  offers.  It  is  merely 
an  instrument  of  good,  which  will  accomplish  nothing  un- 
less there  exist  the  moral  disposition  to  use  it  aright. 

c.  There  must  be  for  both  capital  and  labor,  perfect 
Freedom  unrestricted  by  monopolies  or  special  legislation. 
A  special  favor  in  these  relations  of  labor  and  capital  in- 
volves an  infringement  of  freedom  on  one  side  or  the  other 
and  that  is  an  interference  with  natural  law, — a  hinder- 
ance  to  the  best  results.  A  man's  possessions  are  his  tal- 
ents, faculties,  skill,  and  the  wealth  and  reputation  which 
these  have  enabled  him  to  acquire  ;  in  other  words,  his  in- 
dustry and  his  capital.  In  order  that  industry  be  applied 
to  capital  with  the  greatest  energy,  it  is  necessary  that 
every  man  be  at  liberty  to  use  his  own  as  he  will ;  that  is, 
that  both  of  them  be  free. 

And  first,  of  industry.  The  aptitudes  of  men  for 
different  employments  are  very  dissimilar.  The  choice  of 
every  man  naturally  leads  him  to  that  employment  for 
which  he  is  best  adapted.  By  allowing  every  man,  there- 
fore, to  employ  his  labor  as  he  chooses,  every  man  will  be 
employed  about  that  for  which  he  is  best  adapted ;  and 
hence,  the  production  of  all  will  be  greatly  increased,  be- 
cause we  thus  avail  ourselves  of  the  peculiar  productive- 
ness of  every  individual.  Nor  is  this  all.  By  allowing 
every  man  to  labor  as  he  chooses,  we  very  greatly  increase 
the  happiness  of  every  individual.  And  every  one  knows 
that  a  man  will  labor  with  better  success  when  his  labor  is 
pleasant,  than  when  it  is  irksome. 

The  case  is  the  same  with  respect  to  capital.  Every 
man  is  more  interested  in  his  own  success,  than  any  other 


FREEDOM  TO  LABOR  AND   CAPITAL.  103 

man  can  be  interested  in  it.  Hence,  every  man  is  likely 
to  ascertain  more  accurately  in  what  manner  he  can  best 
employ  his  capital,  than  any  other  man  can  ascertain  it 
for  him.  If  every  man,  therefore,  be  allowed  to  invest  his 
capital  as  he  will,  the  whole  capital  of  a  country  will  be 
more  profitably  invested,  than  under  any  other  circum- 
stances whatever.  And  since,  when  he  is  left  thus  at 
liberty,  there  will  be  the  greatest  gain  to  the  capitalist, 
there  will  also  be  the  greatest  stimulus  to  his  industry  ;  for 
the  stimulus  to  labor  is  always  in  proportion  to  the  rewards 
of  labor.  And,  on  the  contrary,  in  just  so  far  as,  by  any 
means,  this  productiveness  is  diminished,  the  stimulus  to 
labor  is  also  diminished  with  it. 

It  may  be  said  that  men,  if  left  to  themselves,  will  be 
liable  to  invest  their  capital  unwisely.  This  may  be 
granted.  Man  is  not  omniscient  and  therefore  this  liabil- 
ity cannot  be  avoided.  The  question  is  how  shall  it  be 
rendered  as  small  as  possible.  Will  a  man  who  reaps  the 
benefit  of  success  and  suffers  the  evils  of  failure,  be  less 
likely  to  judge  correctly,  than  he  whose  faculties  are 
quickened  by  no  such  responsibility  ?  Nor  is  this  alL 
Not  only  are  legislators  who  generally  assume  the  labor  of 
directing  the  manner  in  which  labor  or  capital  shall  be 
employed,  in  no  manner  peculiarly  qualified  for  this  task, 
they  are  in  many  respects,  peculiarly  disqualified  for  it. 
The  individual  is  liable  to  no  peculiar  biases  in  making 
up  his  mind  in  respect  to  the  profitableness  of  an  invest- 
ment. If  he  err,  it  is  because  the  indications  deceive  him. 
The  legislator,  besides  being  liable  to  err  by  mistaking 
the  indications,  is  liable  to  be  misled  by  party  zeal,  by 
political  intrigue  and  by  sectional  prejudice.  What  indi- 
vidual would  succeed  in  his  business  if  he  allowed  himself 
to  be  influenced  in  the  manner  of  conducting  it  by  such 
considerations  ?  And  must  not  like  causes  always  produce 
like  results  ? 


104  PRODUCTION. 

Besides,  every  man  feels  instinctively  that  he  has  a 
right  to  use  his  capital  and  his  industry  as  he  pleases,  pro- 
vided he  interfere  not  with  the  rights  of  another,  and 
that  to  restrict  him  in  this  use  is  injustice.  We  have  before 
said,  that  nothing  paralyzes  industry  like  oppression,  and 
it  is  as  true  in  this  case,  as  in  any  other.  If  this  sort  of 
interference  be  violent  or  frequently  repeated,  capital  and 
labor,  whose  motto,  like  that  of  Dr.  Franklin  is,  "  Where 
liberty  dwells,  there  is  my  country,"  will  emigrate  to  some 
more  congenial  social  atmosphere.  And  if  the  interfer- 
ence be  not  so  intolerable  as  to  produce  these  results,  yet, 
in  just  so  far  as  it  has  any  effect,  it  is  all  of  this  kind  and 
by  its  whole  operation  must  diminish  the  incitements  to 
industry. 

And,  on  the  contrary,  just  in  proportion  as  every  indi- 
vidual is  free  to  employ  his  industry  and  capital  as  he 
chooses,  and  thus  both  to  receive  a  larger  compensation  for 
his  labor,  and  also  to  labor  more  happily,  will  be  the  in- 
ducements to  industry  and  to  the  investment  of  capital. 

Hence,  we  see  the  mischievous  effect  of  Monopolies.  A 
monopoly  is  an  exclusive  right  granted  to  a  man,  or  to  a 
company  of  men,  to  employ  their  labor  or  capital  in  some 
particular  manner.  Such  was  the  exclusive  right  granted 
.to  the  East  India  Company  to  import  into  the  ports  of 
Great  Britain  or  her  territories  the  productions  of  all  coun- 
tries east  of  the  Cape  of  Good  Hope.  Such  were  the  priv- 
ileges granted  formerly  by  Spain  to  particular  individuals 
or  companies,  of  importing  foreign  commodities  into  the 
ports  of  her  colonies  in  South  America.  The  result  of 
this  exclusion  was  to  prevent  all  other  persons,  except 
those  thus  favored,  from  investing  their  capital  in  this 
manner ;  and  hence,  to  reduce  the  value  of  that  capital  by 
precisely  the  amount  of  this  effect.  Nor  is  this  all.  Those 
who  hold  this  exclusive  privilege,  being  liable  to  no  com- 
petition, may  charge  for  their  commodities  whatever  they 


FREEDOM   TO    LABOR   AND   CAPITAL.  105 

choose.  Here  is  therefore,  a  two-fold  injustice  ;  first,  the 
means  of  the  consumer  are  diminished  ;  and  second,  the 
price  which  he  must  pay,  is  enhanced  at  the  mere  will  of 
his  oppressor. 

We  see  also  the  impolicy  of  obliging  an  individual,  or 
a  class  of  individuals,  to  engage  in  any  labor  or  to  make 
any  investment  contrary  to  their  wishes.  Thus,  we  are 
told  that  during  the  French  Revolution  some  individuals 
were  punished  capitally  for  raising  cattle  instead  of  wheat. 
Men  may  call  this  legislation,  but  the  true  name  for  it  is  rob- 
bery. To  oblige  a  man  to  raise  a  crop  worth  fifteen  dollars 
per  acre,  when  he  would  otherwise  have  raised  one  worth 
twenty  dollars  per  acre,  is  just  the  same  thing  as  to  let 
him  do  as  he  pleases  and  then  rob  him  of  five  dollars  an 
acre  afterwards.  The  wrong  is  the  more  intense  in  the 
former  case,  inasmuch  as  it  is  done  under  the  semblance 
of  justice,  and  by  men  who  claim,  as  the  robber  does  not, 
that  they  have  the  right  to  do  it.  iSuch  legislation  as  this 
will  in  any  country  soon  produce  a  famine. 

Another  form  of  injury  under  this  class  is  seen  in  the 
restrictions  upon  industry,  formerly,  if  not  now  existing 
in  many  of  the  countries  in  Europe,  and  which  certain 
combinations  are  now  trying  to  foist  upon  free  Americans. 
By  these  regulations  artisans  were  prohibited  the  exercise 
of  more  than  one  trade  ;  they  were  not  allowed  to  exercise 
that  trade  unless  they  had  served  a  prescribed  apprentice- 
ship ;  nor  unless  they  joined  a  particular  trade-society 
and  bound  themselves  to  comply  with  certain  restrictions, 
as,  for  instance,  to  sell  at  particular  prices  and  never  to 
employ  beyond  a  certain  number  of  apprentices.  The 
result  of  all  this  oppression  is  most  iniquitous.  It  reduces 
the  value  of  skill  and  industry,  the  sole  estate  of  the 
laborer  ;  and  places  him  in  the  power  of  those  whose  inter- 
est it  is  to  reduce  the  supply  as  much  as  possible,  in  order 
to  secure  to  themselves  the  most  exorbitant  profit.  In 
5* 


106  PRODUCTION. 

such  cases,  a  large  amount  of  available  industry  must  be 
kept  out  of  employment,  and  of  course  production  is  to 
this  whole  amount,  diminished.  The  tyranny  of  trades- 
unions,  though  emanating  from  the  people  instead  of  the 
government,  produces  precisely  this  effect. 

The  same  effect  is  partially  produced  by  any  mode  of 
legislation,  by  which,  in  consequence  of  favor  shown  to 
one  party,  which  of  course  another  party  must  pay  for, 
men  are  obliged  to  exchange  an  employment  for  which  they 
have  peculiar  facilities,  for  another  which  they  do  not  pre- 
fer and  for  which  they  have  not  the  same  facilities.  The 
manner  in  which  this  would  lessen  the  stimulus  to  indus- 
try has  already  been  illustrated.  Thus,  should  our  govern- 
ment, believing  that  commerce  was  more  valuable  to  this 
country  than  manufactures,  lay  a  tax  sufficient  to  meet 
the  expenses  of  the  government  upon  all  American  manu- 
factures, in  order  to  increase  the  amount  of  foreign  im- 
portation, this  would  drive  manufacturers  out  of  business 
and  oblige  them  to  become  merchants  and  agriculturists. 
I  think  that  every  one  must  see  that  this  would  diminish 
the  stimulus  to  labor  throughout  the  whole  country.  Men 
would  not  voluntarily  engage  in  manufactures  in  prefer- 
ence to  commerce,  unless  they  found  manufactures  to  be 
more  profitable  ;  and  to  oblige  them  to  exchange  the  one 
for  the  other,  is  therefore,  to  oblige  them  to  leave  a  more 
productive  for  a  less  productive  mode  of  employment. 
By  all  this  difference  is  the  country  the  loser  and  the  in- 
citement to  industry  diminished. 

We  also  see  the  impolicy  of  laws  regulating  consump- 
tion. Such  are  sumptuary  laws  ;  or  those  which  limit  the 
degree  of  expensiveness  in  our  dress,  clothing  or  equipage. 
These  were  formerly  common  in  Europe.  Such  also  are 
laws  which  forbid  or  restrict  the  expenditure  of  money  for 
the  purposes  of  benevolence,  religion,  or  anything  of  this 
sort.  Every  one  must  see  that  one  of  the  incitements  to 


INTELLECTUAL  AND   MORAL  CULTURE.  10? 

industry,  is  the  pleasure  which  men  expect  to  derive  from 
expenditure.  Now,  if  this  expenditure  be  innocent,  it 
matters  not  what  sort  of  expenditure  it  is.  Society  has 
nothing  to  do  with  it,  and  it  can  in  no  manner  interfere 
with  it  without  doing  injustice  and  taking  away  one  of 
the  strongest  inducements  to  industry.  The  only  excep- 
tion to  be  made  here,  respects  expenditures  which  involve 
vices  destructive  to  the  individual  and  disturbing  to  the 
peace  and  order  of  society. 

After  centuries  of  wrong  and  mischief,  the  world  is 
opening  its  eyes  to  the  fact  that  the  business  of  govern- 
ments respecting  the  relations  of  capital  and  labor  is  sim- 
ply to  protect  the  rights  of  each  and  to  hold  other  things 
in  even  balance  for  the  free  working  of  natural  law, — to  let 
both  alone,  giving  neither  any  advantage,  but  both  the 
utmost  freedom.  They  are  natural  partners,  and  if  not 
interfered  with,  will  spontaneously  seek  each  other  as 
birds  mate  in  the  spring  for  a  happy,  fruitful  union. 

4.  The  General  Intellectual  and  Moral  Cul- 
ture of  a  people  is  an  important  condition  of  the  har- 
monious cooperation  of  labor  and  capital.  In  every  line  of 
industry,  intelligence  in  the  laborer  adds  greatly  to  his  effi- 
ciency. Capital  too,  is  more  safely  entrusted  to  such  as 
have  mind  as  well  as  muscle, — who  see  the  relation  of  means 
to  ends  and  think  while  they  ivork, — who  add  to  their  skill 
in  mechanical  processes  some  knowledge  of  the  nature  and 
laws  of  the  material  and  forces  with  which  they  work. 

But  with  reference  to  the  cooperation  now  under  con- 
sideration, it  is  of  the  highest  importance  that  both  par- 
ties as  they  meet,  should  be  capable  of  taking  broad  views 
of  their  common  interests  and  mutual  dependence.  So 
long  as  the  mass  of  laborers  are  ignorant  and  narrow- 
minded  and  thus  greatly  inferior  to  capitalists,  the  dis- 
tinction of  classes  is  more  strongly  drawn  and  there  is  on 


108  PRODUCTION. 

one  side,  some  temptation  to  take  advantage  of  the  supe- 
rior knowledge,  in  a  way  to  wrong  and  oppress  the  weak 
and  dependent ;  and  on  the  other  side,  there  is  a  tendency 
even  stronger,  in  the  consciousness  of  weakness  and  igno- 
rance, to  suspect  wrong,  to  chafe  and  complain  and  make 
unreasonable  demands,  and  to  rush  madly  into  violent 
measures.  Harmony  between  the  two  requires  mutual 
respect,  and  the  basis  of  this  mutual  respect  is  self-respect 
on  the  part  of  each,  which  springs  from  a  clear,  intelligent 
understanding  of  relations,  rights  and  privileges.  Here 
capitalists  as  well  as  laborers  need  to  study  first  principles. 
If  laborers  are  to  be  kept  in  ignorance  and  held  down,  as 
a  lower  stratum  of  society,  then,  no  doubt,  the  despotism 
of  slavery,  the  compulsion  of  force  is  best  adapted  to  har- 
mony and  order  in  the  processes  of  production.  But  all 
history  shows  that  under  such  a  regime,  there  is  little 
chance  for  improvement,  little  stimulus  to  progress  on 
either  side.  Self-interest,  as  the  main-spring  of  human 
exertion,  is,  as  we  have  seen,  a  prime  element  of  the  science 
of  political  economy.  It  demands  freedom  for  every  man 
to  make  the  most  of  himself,  and  to  do  the  best  for  him- 
self. For  a  wise  judgment,  choice  and  action,  every  man 
needs  the  intelligence  which  comes  by  education.  Sound 
political  economy  therefore,  prescribes  the  free,  general 
education  of  a  people  by  all  means  which  tend  to  increase 
and  diffuse  knowledge,  as  an  essential  condition  of  the 
most  effective  union  of  labor  and  capital  for  the  produc- 
tion of  wealth. 

Still  more  important  is  the  moral  culture  of  a  people  ; 
for  on  it  depends  the  justice  of  the  laws  and  the  force  of 
public  sentiment  which  sustains  them,  respect  for  individ- 
ual right,  security  to  property  and  individual  and  social 
virtue  which  alone  can  make  wealth  a  source  of  happiness. 
Intellectual  cultivation  may  exist  without  promoting  recti- 
tude and  virtue.  In  this  case,  however,  its  only  effect  is  to 


INTELLECTUAL   AXD   MORAL   CULTURE.  109 

stimulate  desire,  unbalanced  by  the  love  of  right,  until  the 
mad  passions  of  men  break  down  the  very  structure  of  society 
and  self-interest  reduced  to  pure  selfishness,  destroys  mu- 
tual confidence  and  cooperation,  and  reigns  supreme  in 
anarchy,  fatal  alike  to  the  production  and  enjoyment  of 
wealth.  On  principles  of  political  economy,  therefore,  we 
may  advocate  also,  such  means  of  moral  culture  as  the  free 
circulation  of  the  Scriptures  and  the  inculcation  of  moral 
and  religious  truth  upon  the  minds  of  men,  through  Sab- 
bath-schools and  the  preaching  of  the  gospel.  They  have  an 
important  bearing  on  the  productive  energies  of  a  country. 
The  argument  is  very  short,  but  it  seems  very  conclusive. 
No  nation  can  rapidly  accumulate  or  long  enjoy  the  means 
of  happiness,  except  as  it  is  pervaded  by  the  love  of  indi- 
vidual and  social  right ;  but  the  love  of  individual  and 
social  right  will  never  prevail  without  the  practical  influ- 
ence of  the  motives  and  sanctions  of  religion ;  and  these 
motives  and  sanctions  will  never  influence  men,  unless 
they  are,  by  human  effort,  brought  to  bear  upon  the  con- 
science. 

The  same  principles  will  defend,  on  economical  grounds, 
the  efforts  of  benevolence  on  behalf  of  foreign  nations.  In- 
telligence, virtue  and  equitable  laws,  will  have  the  same 
effect  upon  other  men  that  they  have  upon  us.  They  will 
render  men  industrious,  frugal,  and  consequently  rich,  and 
raise  them  from  a  savage  to  a  civilized  state.  Just  in  pro- 
portion as  a  nation  is  thus  transformed,  are  its  products 
increased  ;  the  riches  of  the  whole  world  are  augmented  ; 
the  portion  of  wealth  which  falls  to  the  share  of  each  man 
is  rendered  greater  ;  and  the  ratio  of  capital  to  labor  is 
higher.  Just  as  a  nation  becomes  intelligent  and  rich,  its 
wants  are  multiplied,  and  the  means  for  supplying  them 
are  provided.  Hence,  it  becomes  a  better  customer  to 
other  nations  ;  it  gives  an  additional  impulse  to  their 
industry  ;  and  it  repays  them  for  their  products  with 


110  PRODUCTION. 

whatever  God  has  bestowed  upon  it,  which  will  add  to  the 
happiness  of  others. 

Some  particular  measures  for  the  better  harmonizing  of 
capital  and  labor  will  come  up  for  consideration  hereafter, 
in  another  connection.  A  few  general  thoughts  on  the 
present  aspect  of  the  question  may  fitly  conclude  what  we 
have  to  say  here.  It  must  be  acknowledged  that  through 
greater  facility  for  organization,  through  false  views  which 
have  gained  acceptance  in  the  current  usage  of  business, 
and  through  mistaken  legislation  in  some  things,  capital 
has  been  unduly  favored.  It  has  the  advantage,  and  in- 
clines to  oppress  labor.  Laborers  have  some  reason  to 
complain  and  ask  for  relief.  Justice  and  philanthropy 
require  that  every  man  who  fears  God  and  loves  his  fel- 
low-man, should  consider  the  rights  involved  and  lend  a 
helping  hand  to  the  weak.  But,  admitting  this,  it  is  obvi- 
ous from  the  view  presented,  that  any  measures  which 
directly  increase  jealousy  between  the  parties,  any  organiza- 
tion which  contemplates  open  war  between  labor  and  capi- 
tal, will  only  aggravate  the  evil  and  work  damage  to  both 
sides.  Combinations  of  employers  on  the  one  hand  to  rule 
out  fair  competition  and  arbitrarily  fix  the  wages  to  be 
paid, — or  of  laborers  on  the  other,  to  agree  on  what  they 
will  demand,  and  in  general  strikes  and  trades-unions  as 
ordinarily  conducted,  are  in  this  light  positively  mischiev- 
ous. The  great  interests  of  both  are  common  and  the  true 
relief  must  come  from  a  better  understanding  and  a  con- 
trolling regard  for  these  common  interests. 

On  the  other  hand  all  measures  which  tend  to  increase 
the  intelligence  and  promote  the  thrift  and  independence 
of  laborers  and  so  to  inspire  them  with  self-respect  and 
confidence  as  they  come  into  contact  and  union  with  capi- 
talists, are  helpful.  Cooperative  associations  which  gather 
up  the  scattered  capital  of  many  laborers  to  be  used  in  the 


CO-OPERATION   OF   LABOR  AND   CAPITAL.  Ill 

employment  of  their  own  industry,  and  those  which  are 
designed  to  favor  economical  expenditures  for  the  means 
of  living  and  to  promote  social  culture  and  enjoyment, 
may  fitly  be  commended  and  encouraged.  If  capital  has 
gained  an  advantage  by  special  legislation,  this  is  to  be 
counterbalanced,  not  by  special  legislation  to  favor  the 
other  side,  by  attempts  to  fix  the  hours  and  wages  of  labor, 
but  by  earnest  united  protests  against  all  special  legisla- 
tion— by  insisting  on  freedom  as  the  fundamental  law  of 
productive  industry.  Freedom  to  work  and  honest  pay  for 
honest  work  well  done  is  the  universal  maxim  of  wisdom 
for  genuine  thrift.  The  mischief  is  that  thousands  are 
studying  and  struggling  all  the  time,  to  thrive  by  the  op- 
posite course,  reaching  on  the  one  hand  after  the  fruit  of 
honest  work  without  rendering  honest  pay,  and  on  the 
other,  reaching  after  dishonest  pay  for  dishonest  work. 
The  grand  correction  for  this  condition  of  things,  is  to  be 
found  in  a  more  sacred  regard  on  all  hands  to  that  great 
command  uttered  by  Jehovah  at  Sinai  a  few  thousand  years 
ago,  "  THOU  SHALT  NOT  STEAL." 

The  discussion  of  the  bearing  of  Protective  Duties  on 
Production  will  be  deferred,  until  we  have  presented  the 
laws  of  Exchange,  with  which  the  principle  of  such  duties 
is  also  most  closely  concerned. 


CHAPTER  X. 

SECOND  DIVISION.— CONSUMPTION. 

The  Nature  of  Consumption. — All  the  processes  of 
Political  Economy  contemplate  actual  gratifications  as  the 
ultimate  end.  This  end  can  be  attained  only  by  consuming 
the  results  of  production.  This  is  the  legitimate  Use  of 
wealth.  Consumption  is  thus  the  counterpart  of  Produc- 
tion. In  its  widest  signification  it  is  the  Destruction  of 
Value.  By  this  is  not  meant  the  annihilation  of  the  mate- 
rial, but  only  of  a  particular  form  of  utility,  the  prime  ele- 
ment of  value.  Thus,  if  gunpowder  be  burned,  if  bread  be 
eaten,  if  a  tree  be  felled,  the  particular  utility  which  each 
originally  possessed,  is  destroyed  forever.  And  this  destruc- 
tion of  value  takes  place,  altogether  independently  of  the 
result  which  may  in  different  cases  ensue,  because  that  de- 
struction is  as  truly  effected  in  one  case  as  in  another.  A 
load  of  wood,  once  burned,  as  truly  loses  its  utility,  that  is, 
its  power  of  creating  heat,  when  it  is  destroyed  in  a  con- 
flagration, as  when  it  is  consumed  under  a  steam  boiler,  or 
in  a  fire  place,  though  the  result  in  the  two  cases  may  be 
very  dissimilar.  If  bread  be  thrown  into  the  sea,  its  utility 
is  destroyed,  just  as  much  as  if  it  were  eaten,  though  in 
the  one  case  there  is  no  result  from  the  consumption,  and 
in  the  other,  it  is  the  means  of  creating  the  vigor  necessary 
to  labor. 

Hence  consumption,  viewed  simply  by  itself,  may  be 
considered  in  the  nature  of  a  misfortune.  It  is  the  de- 
struction of  so  much  wealth  as  is  consumed.  A  man,  if  he 
had  his  choice,  would  rather  create  one  product  without 


CONSUMPTION   OF  CAPITAL.  113 

destroying  another,  or  enjoy  a  gratification,  if  it  were 
possible,  without  rendering  the  thing  enjoyed  useless. 
But,  inasmuch  as  it  is  the  law  of  our  Creator  that  we  shall 
obtain  our  possessions,  and  gratify  our  desires,  on  no  other 
conditions  than  that  of  the  destruction  of  value,  we  have 
no  choice.  We  cannot  cut  up  a  hide  of  leather  for  the 
purpose  of  making  shoes,  without  destroying  forever  its 
utility  as  a  hide  of  leather.  We  cannot  cut  down  a  tree, 
and  saw  it  into  boards  without  destroying  forever  its  utility 
as  a  tree.  We  cannot  enjoy  the  pleasure  of  eating  an 
orange,  without  destroying  forever  the  power  in  that 
orange  of  affording  to  any  one  else  the  same  pleasure. 
And  thus,  in  general,  consumption  is  one  part  of  an  ex- 
change, in  which  we  surrender  a  value  with  the  hope  of 
securing  a  gratification  or  of  obtaining  another  value. 
Whether  the  hope  be  realized  or  not,  the  value  consumed 
is  surrendered,  and  surrendered  forever. 

When,  however,  it  is  said,  that  the  utility  consumed  is 
destroyed  forever,  we  mean  only  to  speak  of  this  particu- 
lar utility.  There  may  yet  remain  some  valuable  quality 
which  has  not  yet  been  affected.  Thus,  if  a  linen  garment 
be  worn  out,  its  utility  as  a  linen  garment  is  destroyed  for- 
ever. It  may,  however,  still  possess  an  important  utility, 
as  a  material  for  the  manufacture  of  lint  or  of  paper. 
Wood  may  be  consumed  for  fuel  and  its  utility  as  fuel  may 
be  destroyed  forever.  A  quantity  of  ashes  however  re- 
mains, which  possesses  utility  for  the  manufacture  of  soap. 
Hence  we  see  the  importance,  in  all  cases,  of  entirely  ex- 
hausting all  the  values  contained  in  any  product  before  we 
surrender  it  up  as  worthless.  For  the  want  of  this  care, 
millions  of  property  are  annually  wasted.  The  difference 
between  the  cost  of  two  establishments,  in  the  one  of 
which  every  utility  of  every  substance  is  consumed,  and  in 
the  other  of  which,  only  the  first  utility  is  consumed,  is 
frequently  as  great  as  the  nett  profits  realized  in  the  ordi- 


114  CONSUMPTION. 

nary  employments  of  industry.  A  prominent  advantage  of 
large  manufacturing  establishments  is  that  they  can  afford 
to  utilize  many  minor  forms  of  value  which,  in  production 
on  a  small  scale,  would  be  wasted. 

Forms  of  Consumption. — 1.  Consumption  may  be 
either  of  labor  or  of  capital.  A  mechanic  who  bestows  a 
day's  labor  upon  a  table,  consumes  that  amount  of  labor 
upon  it.  He  also  consumes  the  material  upon  which  he  has 
labored.  He  has  received  in  return  the  table,  and,  if  his 
labor  and  capital  have  been  well  employed,  the  result  will 
recompense  his  consumption,  both  of  labor  and  capital. 
So  he  who  employs  laborers  to  work  for  him,  consumes  all 
the  labor  which  he  purchases.  Hence  every  day  spent  is, 
in  fact,  so  much  value  consumed.  If  it  bring  no  profitable 
result,  it  is  so  much  value  wasted. 

2.  Consumption  may  be*  either  voluntary  or  involun- 
tary. It  is  voluntary  when  it  is  effected  by  design.  It  is 
involuntary  when  it  is  the  result  of  accident.  In  either 
case,  if  there  be  consumption,  there  is  value  destroyed. 
The  difference  is,  that,  in  the  one  case,  there  is  a  profit- 
able result  expected  ;  in  the  other  case  there  is  none.  If  a 
loaf  of  bread  become  mouldy  by  neglect,  its  value  is  de- 
stroyed just  as  much  as  though  it  were  eaten.  The  differ- 
ence is,  that,  in  the  one  case  the  loss  is  total ;  in  the  other 
case  the  consumption  of  value  creates  a  power  to  labor 
which  is  of  more  value  than  the  loaf  itself.  If,  for  the 
want  of  a  fender,  the  fire  fall  out  of  the  fire-place  and  burn 
the  carpet,  the  carpet  is  as  effectually  consumed  as  if  it 
were  worn  out  by  use.  The  difference  is,  that,  in  the  one 
case  it  affords  a  substantial  convenience,  and  in  the  other  it 
affords  none.  If,  by  forge tfulness  or  neglect,  a  gate  is  left 
.  unlatched,  and  it  is  beaten  in  pieces  by  the  wind,  it  is  as 
effectually  consumed  as  by  the  wear  of  several  years.  The 
difference  is,  that,  in  the  one  case  it  answers  for  a  long 


FORMS  OF  CONSUMPTION".  115 

time  the  purpose  of  inclosure,  in  the  other  case  it  answers 
no  purpose  at  all.  Hence  the  necessity  of  care  and  vigi- 
lance in  all  the  business  of  life.  Almost  every  tiling  is 
constantly  tending  to  destruction.  Vegetable  matter  de- 
cays. Animal  matter  putrefies.  Most  of  the  metals  may 
be  corroded.  Almost  all  our  possessions  are  liable  to  acci- 
dental destruction,  from  fire,  or  flood,  from  the  frosts  of 
winter  or  the  heats  of  summer.  Hence,  without  our  con- 
tinual care,  a  continual  process  of  consumption  will  be 
going  on,  by  which  our  capital  will  be  diminished. 

3.  Consumption  is  either  rapid  or  gradual.  The  con- 
sumption of  wood  for  fuel  is  rapid.  The  consumption  of 
wood  in  consequence  of  the  wear  of  a  dwelling  house,  is 
gradual.  But  gradual  consumption  is  as  sure  and  as  cer- 
tain as  though  it  were  rapid.  Hence,  in  estimating  cost 
and  expenses,  unless  an  allowance  be  made  for  wear  and 
tear,  our  calculations  will  not  agree  with  the  fact.  If  a 
man's  furniture  be  wearing  out  every  year,  this  average  of 
loss  is  as  much  to  be  taken  into  account,  in  estimating 
his  expenses,  as  the  cost  of  the  fuel  which  he  consumes. 
Value  may  be  consumed  at  the  very  moment  of  produc- 
tion, as  in  the  case  of  the  pleasure  afforded  by  a  concert  or 
a  theatrical  exhibition. 

The  annual  consumption  of  an  individual,  is  the  sum 
total  of  all  the  values  which  he  destroys.  Hence  the 
materials  upon  which  he  operates,  the  tools  which  he 
wears  out,  the  expenses  of  his  household,  both  for  ma- 
terials and  for  labor,  are  all  to  be  reckoned  as  parts  of  his 
annual  consumption.  So,  also,  the  values  destroyed  by  a 
nation,  are  the  national  consumption.  The  exports  of  a 
country  are  a  part  of  national  consumption,  since  value 
to  the  full  amount  of  the  exports  is  abstracted  from  the 
capital  of  the  country.  On  the  contrary,  the  imports  are^ 
the  product,  or  what  the  country  receives  back  again  iu 
return  for  its  exports  or  consumption. 


116  CONSUMPTION'. 

Every  man  in  the  country  is  a  consumer.  Without 
consuming  he  could  not  sustain  life  a  day.  He  must  con- 
sume the  food  which  he  eats,  the  clothes  which  he  wears, 
and  the  dwelling  that  shelters  him.  Hence,  if  one  is  doing 
nothing  directly  or  indirectly #to  promote  production,  he 
must  be  accounted  a  useless  burden  upon  the  community. 
If  the. benefit  of  his  services  falls  short  of  the  values  he 
consumes,  he  is,  by  the  whole  amount  of  that  deficiency, 
an  unprofitable  member  of  the  body  politic. 

Objects  of  Consumption. — All  voluntary  consump- 
tion of  wealth  is  for  an  anticipated  good.  There  are  two 
kinds  of  good  on  the  one  or  the  other  of  which  the  con- 
sumer fixes  his  aim  and  expectation.  The  one  is  the  in- 
crease of  wealth  by  Reproduction.  The  other  is  an  immedi- 
ate Gratification.  Productive  consumption  requires  care, 
skill  and  labor,  while  consumption  for  gratification  requires 
neither.  Hence  ordinarily,  productive  consumption  is  not 
itself  a  pleasure,  but  consumption  for  the  other  object  is 
a  present  joy. 

We  can  rarely  use  the  same  value  for  these  two  distinct 
and  opposite  purposes.  If  a  man  consume  one  hundred 
dollars  in  amusement,  or  in  ostentation,  he  cannot  have  it 
also  as  capital,  to  be  employed  in  his  trade.  And,  not 
only  can  he  not  have  it  now,  but  he  can  never  have  it 
again.  If  it  be  invested  in  reproduction  this  year,  it  may, 
by  next  year,  amount  to  one  hundred  and  fifty  dollars, 
and  the  year  after,  to  two  hundred  dollars,  and  in  twenty 
years  it  may  become  five  thousand  dollars.  If  it  be  spent 
on  an  entertainment,  or  a  journey  of  pleasure,  it  is  lost, 
and  all  that  it  might  have  subsequently  become,  is  lost 
forever.  This  should  be  borne  in  mind  by  every  man  who 
wishes  to  rise  to  independence.  Every  dollar  which  is 
spent  in  self-gratification,  is  so  much  capital  placed  forever 
out  of  his  power.  And,  on  the  contrary,  every  dollar 


ECONOMY   OF  CAPITAL.  117 

which  ho  invests  in  reproductive  employment,  may  at  some 
future  time  minister  to  gratification,  or  it  may  provide  the 
means  of  much  more  valuable  gratification,  in  subsequent 
life. 

In  order  to  present  the  principles  of  sound  economy  as 
applied  to  them  we  must  consider  these  two  phases  of  con- 
sumption separately. 

1.  Consumption  for  Reproduction. — In  treating 
the  laws  of  Production,  it  has  been  already  shown  that 
the  creation  of  values  always  involves  a  meeting  of  Capital 
and  Labor  in  which  both  are  consumed. 

"With  respect  to  the  consumption  of  Capital  the  follow- 
ing economical  rules  may  be  laid  down. 

a.  To  produce  a  given  result,  the  consumption  of  capi- 
tal should  be  as  small  as  possible.  The  ordinary  maxim  is 
as  true  as  it  is  common,  a  penny  saved  is  a  penny  earned. 
In  estimating  the  profits  of  any  operation,  it  is  manifest, 
that  he  who  has  produced  a  value  worth  one  hundred  dol- 
lars, at  an  expense  of  sixty  dollars,  reaps  a  profit  of  twenty 
dollars  more  than  he  who  has  produced  the  same  value  at 
an  expense  of  eighty  dollars.  Thus,  the  farmer  should 
economize  to  the  utmost  all  his  materials.  He  who  saves 
half  a  bushel  of  seed  in  sowing  an  acre,  enriches  himself 
as  much  as  though  he  had  reaped  half  a  bushel  more  per 
acre.  It  is  said  that  in  China,  sowing  is  always  done  by 
drilling.  One  of  Lord  Macartney's  suite  estimated  that 
the  saving  throughout  the  whole  empire  from  this  im- 
provement is  sufficient  to  feed  the  whole  population  of 
Great  Britain.  The  same  principle  applies  to  mechanics, 
manufacturers  and  all  consumers  whatever.  It  is,  unfor- 
tunately, the  case  that,  from  want  of  care  and  ingenuity, 
a  much  larger  portion  of  value  is  commonly  consumed, 
than  is  necessary  for  the  production  required.  This  is 
especially  the  case  with  fuel.  Probably  not  more  than  one- 


118  CONSUMPTION'. 

tenth  of  the  heat  given  off  by  wood  is  rendered  service- 
able by  an  open  fire-place. 

b.  We  should  employ  capital,  of  no  greater  value  than 
is  necessary  to  effect  the  production  intended.     Hence, 
every  producer  should  make  it  an  object  of  inquiry,  to  as- 
certain, so  far  as  the  present  state  of  knowledge  may  en- 
able him,  in  what  manner  he  may  effect  his  purposes  by 
the  least  costly  materials.     The  merchant,  on  this  princi- 
ple, should,  before  making  an  exchange,  ascertain  what  is 
the  cheapest  product  at  home,  with  which  he  will  be  able 
to  procure  a  given  amount  of  a  product  from  abroad. 
Very  much  of  the  success  of  a  producer  must,  of  course, 
depend  upon  his  skill  in  this  respect.     The  discovery  of  a 
cheaper  dye  stuff  of  equal  goodness,  or  the  exchange  of 
one  export  for  another,  may  frequently,  of  itself,  be  suf- 
ficient to  render  a  man  independent.      "We   do  not,  of 
course,  suppose  that  any  man  will  be  so  simple  as  know- 
ingly to   expend  more    in  production   than  he  supposes 
necessary.     To  guard  him  against  this   folly  is  not  our 
object.   It  is  rather  to  incite  every  man  to  a  more  thorough 
and  intimate  knowledge  of  the  principles  on  which  the 
operation  which  he  conducts,  depends. 

c.  It  is  important  that  every  utility  possessed  by  any 
substance  be  entirely  consumed. 

In  order  to  secure  this  result,  attention  must  be  paid 
to  two  circumstances.  First.  All  the  fragments  and 
remnants  should  be,  so  far  as  possible,  employed  to  some 
valuable  purpose.  This  principle  is  well  illustrated  in  the 
various  uses  to  which  the  horns  of  cattle  are  applied.  The 
horn  consists  of  two  parts,  an  outward  horny  case  and  an 
inward  conical  shaped  substance.  The  first  process  con- 
sists in  separating  these  two  parts  by  means  of  a  blow 
against  a  block  of  wood.  The  horny  exterior  is  then  cut 
into  three  portions  by  means  of  a  frame  saw. 

1.  The  lowest  of  them,  next  to  the  root  of  the  horn, 


ECONOMY  OF  CAPITAL.  119 

after  undergoing  several  processes  by  which  it  is  rendered 
flat,  is  made  into  combs. 

2.  The  middle  of  the  horn,  after  being  flattened  by 
heat,  and  its  transparency  improved  by  oil,  is  split  into 
thiu  layers,  and  forms  a  substitute  for  glass  in  lanterns. 

3.  The  tip  of  the  horn  is  used  by  the  makers  of  knife 
handles,  and  of  the  tops  of  whips. 

4.  The  interior  or  core  of  the  horn,  is  boiled  down  in 
water.     A  large  quantity  of  fat  rises  to  the  surface.     This 
is  sold  to  the  makers  of  yellow  soap. 

5.  The  liquid  itself  is  used  as  a  kind  of  glue,  and  is 
purchased  by  the  cloth  dressers  for  stiffening. 

6.  The  bony  substance  which  remains  behind,  is  sent 
to  the  mill,  and  being  ground  down,  is  sold  to  the  farmers 
for  manure. 

7.  The  clippings  and  shavings  are  also  sold  to  the  far- 
mers for  manure,  or  are  used,  in  small  quantities,  for  the 
manufacture  of  toys.* 

Now,  it  is  evident  that  if  any  part  of  this  material  were 
wasted,  the  cost  of  the  manufactured  articles  would  be 
higher,  and  the  gains  of  the  producer  less.  And  we  also 
see  that  he  who  first  discovered  the  mode  of  rendering  any 
one  of  these  portions  of  a  horn  useful,  must,  by  this  single 
discovery,  have  made  himself  rich. 

Second.  All  the  values  must  be  consumed  in  the  most 
profitable  manner.  It  frequently  happens  that  a  producer 
wants  but  one  value  from  a  substance  for  his  particular 
purpose,  while  another  and  an  important  value  remains 
unappropriated.  It  is  always  a  matter  of  importance  to 
employ,  in  the  best  manner,  every  value  which  a  substance 
is  known  to  possess.  Thus,  after  we  have  derived  from 
wood,  all  the  heat  which  it  can  evolve,  it  leaves  ashes, 
which  possess  an  important  value.  After  the  oil  has  been 
expressed  from  flax  seed,  the  residuum  is  valuable  food  for 
*  Babbage  on  Manufactures. 


ISO  CONSUMPTION. 

cattle.  The  employment  of  this  utility  of  course,  lessens 
the  price  of  oil,  and  increases  the  demand  for  it.  Hence, 
the  superiority  as  to  the  economy,  of  large  establishments 
over  smaller  ones.  A  large  manufacturing  establishment 
can  carry  on  several  distinct  operations,  for  the  sake  of 
using  these  secondary  utilities.  In  a  small  one,  this  would 
be  impossible,  and  much  must  in  consequence  be  wasted. 
Thus,  in  connection  with  a  large  slaughter-house,  a  soap 
and  candle  manufactory,  a  manufactory  of  glue,  and  one 
of  neat's  foot  oil,  may  be  sustained,  while  a  large  number 
of  hogs  are  fattened  with  the  refuse  of  these  several  estab- 
lishments. In  this  manner,  every  part  of  the  slaughtered 
animal  is  profitably  consumed.  In  small  establishments, 
a  large  portion  of  these  fragments  would  be  wasted. 

With  respect  to  the  Consumption  of  Labor,  true  econ- 
omy requires  us 

a.  To  employ  precisely  as  mucli  labor  as  is  necessary  to 
accomplish  the  intended  result.  We  should  never  employ 
more  than  is  wanted.  This  generates  idleness  and  negli- 
gence. One  supernumerary  laborer  is  not  only  useless  him- 
self, but  he  generally  requires  the  time  of  two  or  three 
others  to  bear  him  company  in  idleness. 

We  should  never  employ  less  labor  than  is  wanted. 
This  produces  confusion  and  destroys  the  advantages  of 
correct  division  of  labor.  It  saves  nothing  to  employ  one 
person  less  than  is  necessary  in  an  establishment,  and  to 
suspend  the  labor  of  others  several  times  in  a  clay,  in 
order  to  do  the  work  which  that  one  should  have  accom- 
plished. 

In  general,  provided  of  course,  the  work  be  well  done, 
the  less  the  consumption  of  labor  the  better  for  the  pro- 
ducer. Hence,  the  economy  of  labor-saving  machinery. 
He  who,  by  an  ingenious  contrivance,  is  able  to  save  the 
hire  of  one  laborer,  will  find  himself,  sit  the  end  of  the 
year,  richer  by  precisely  this  amount  saved. 


ECONOMY   OF  LABOlt.  121 

b.  We  should  employ  labor  at  no  higher  price,  than  is 
necessary  to  accomplish  our  object. 

Every  important  operation  consists  of  several  subordi- 
nate operations,  requiring  very  different  degrees  of  skill  in 
their  execution.  According  to  these  degrees  of  skill,  the 
wages  of  labor  are  adjusted.  Now,  economy  demands, 
that  labor  of  no  higher  price  should  be  employed  on  each 
several  operation,  than  the  importance  of  the  operation 
requires.  He  who  is  able  so  to  arrange  his  laborers,  as  to 
execute,  by  labor  worth  fifty  cents,  what  was  formerly 
executed  by  labor  worth  one  dollar,  makes  a  gain  of  fifty 
cents  a  day.  Thus,  in  the  power-press,  the  labor  of 
press-work  which  formerly  employed  two  able-bodied  men, 
is  executed,  in  part,  by  animal  force,  or  by  steam  power, 
and  the  remainder  by  women.  The  reduction  in  price 
thus  effected  is  very  considerable. 

But  while  this  is  the  fact,  it  is  also  the  fact,  that  it  is 
never  profitable  to  employ  laborers  incapable  of  accom- 
plishing'the  result.  If  a  particular  part  of  an  operation 
require  skill  and  labor  worth  five  dollars  per  day,  it  is  bet- 
ter to  give  this  price  than  to  confide  it  to  an  incompetent 
person  who  is  willing  to  work  for  two  dollars  per  day. 
Thus,  a  good  painter  of  calico  patterns,  a  good  calico  en- 
graver, or  dyer,  may  be  cheaper  at  five  dollars  per  day, 
than  an  inferior  artist,  even  if  the  latter  would  perform 
the  labor  for  nothing. 

Hence,  the  importance  of  an  accurate  knowledge  of 
principles  to  every  one  engaged  in  extensive  production. 
It  is  by  deep  and  thorough  reflection  upon  every  part  of 
the  process  which  he  conducts,  that  a  manufacturer  is  able 
to  keep  up  with,  and  especially  to  add  to,  the  improve- 
ments of  the  age,  and  to  prevent  himself  from  being  un- 
dersold by  his  more  enterprising  and  intelligent  neigh- 
bors. 

c.  The  labor  paid  for,  should  all  be  performed.     Time, 

6 


122  CONSUMPTION. 

as  it  is  frequently  said,  is  money.  It  is  surely  money  to 
him  who  pays  money  for  it.  And,  of  course,  every  hour 
for  which  he  pays,  that  is  spent  in  idleness  or  useless- 
ness,  is  so  much  useless  consumption,  or  so  much  absolute 
loss. 

The  causes  of  the  waste  of  labor  are  various.  Some  of 
the  more  common  are  : 

Want  of  superintendence.  It  cannot  be  supposed  that 
laborers,  if  left  alone,  and  if  paid  by  the  day,  will  labor 
as  faithfully  as  if  laboring  for  themselves.  Hence  the 
necessity  and  the  economy  of  efficient  superintendence. 
He  who  employs  twenty  men  by  the  day,  to  perform  a 
particular  piece  of  work,  will  find  that  an  efficient  super- 
intendent will,  by  preventing  idleness,  sauntering,  and 
story-telling,  save  much  more  than  his  wages.  Hence, 
commonly,  where  the  labor  is  of  such  a  nature  as  to  allow 
of  it,  it  is  cheaper  to  pay  by  the  piece  than  by  the  day. 
In  the  one  case  if  a  laborer  be  idle  he  Avastes  his  own 
time ;  in  the  other  case  the  time  of  the  employer.  It 
is  easy  to  perceive  which  case  is  the  more  favorable  to 
industry. 

Irregularity.  This  is  a  great  source  of  waste  of  labor. 
Where  tools  are  allowed  to  get  out  of  place,  materials  to  be 
deficient  or  unsuitable ;  or  where  several  laborers  are 
obliged  to  stand  idle,  to  wait  for  the  completion  of  an 
operation  which  is  done  out  of  season,  much  time  must  of 
necessity  be  lost.  In  a  shop  containing  a  dozen  workmen, 
if  each  one  spend,  on  an  average,  half  an  hour  a  day  in 
looking  for  misplaced  tools,  or  in  waiting  for  materials  not 
at  hand,  this  is  a  loss  of  more  than  half  the  wages  of  one 
laborer  a  day.  This,  in  a  year,  would  be  sufficient  to  pur- 
chase the  clothes  of  a  small  family. 

Defective  tools.  In  order  that  the  economy  of  labor 
may  be  as  great  as  possible,  the  tools  by  which  labor  is 
saved,  should  be  as  perfect  as  possible  ;  otherwise  we  derive 


ECONOMY   OF  LABOR.  123 

only  a  partial  benefit  from  the  invention.  He  who  em- 
ploys a  man  to  chop  wood,  would  certainly  see  the  impor- 
tance of  furnishing  him  with  a  sharp  axe.  He  who  erects 
a  fence,  to  save  the  labor  of  guarding  his  cattle,  will  cer- 
tainly do  Avisely  to  keep  his  fence  in  good  order.  It  is 
surely  less  labor  to  mend  a  gap  in  a  fence,  than  to  be  obliged 
to  plant  a  field  a  second  time,  because  the  grain  has  been 
destroyed  by  cattle  which  that  gap  permitted  to  enter.  It 
takes  less  labor  to  mend  a  leakage  in  a  mill  dam,  than  to 
rebuild  the  dam  after  it  has  been,  by  means  of  that  leak- 
age, carried  away.  Hence  the  importance  of  keeping 
every  part  of  an  establishment  in  perfect  order,  and  of 
allowing  nothing  to  be  out  of  repair,  if  it  be  possible  to 
repair  it. 

"I  remember,"  says  Say,  "  being  once  a  witness  of  the  number- 
less misfortunes  which  a  neglectful  house-keeping  entails.  For  the 
want  of  a  small  latch,  the  gate  of  the  poultry  yard  was  forever  open, 
there  being  no  means  of  closing  it  externally,  and  many  of  the  poultry 
were  lost  in  consequence.  One' day,  a  fine  young  porker  made  his 
escape  into  the  woods,  and  the  whole  family,  gardener,  cook,  milk- 
maid, etc.,  presently  turned  out  in  quest  of  the  fugitive.  The  gar- 
dener, in  leaping  a  ditch,  got  a  sprain  that  confined  him  to  his  bed 
for  a  fortnight.  The  cook  found  the  linen  burnt  that  she  had  left  at 
the  fire  to  dry.  The  milk-maid  forgot,  in  her  haste,  to  tie  up  the 
cattle  in  the  cow  house,  and  one  of  the  loose  cows  broke  the  leg  of  a 
colt,  that  was  kept  in  the  same  shed.  The  linen  burnt,  the  garden- 
er's work  lost,  were  worth  twenty  crowns,  and  the  colt  as  much 
more,  so  that  forty  crowns  were,  in  a  few  minutes,  lost,  for  want  of 
a  latch  that  would  not  have  cost  more  than  a  few  sous."  [Pol. 
Economy,  Book  3d,  chap.  5. 

Illustrations  of  the  importance  of  having  every  instru- 
ment in  order,  and  in  place,  are  occurring  in  most  estab- 
lishments every  day.  They  teach  us,  that  economy  of 
capital,  as  well  as  of  labor,  requires,  that  every  thing 
should  be  done  in  time,  and  in  season  ;  that  if  a  thing 
need  to  be  done  to-day,  we  have  no  means  which  shall  en- 


124  CONSUMPTION. 

able  us  to  estimate  the  loss  that  may  ensue  by  putting  it 
off  until  to-morrow  ;  and,  that  negligence  is  as  much  at 
variance  with  the  laws  of  our  Creator,  as  absolute  waste- 
fulness, inasmuch  as  it  exposes  us  to  equally  severe  punish- 
ments. 

Supposing  now  that  both  labor  and  capital  have  been 
invested  upon  the  most  economical  principles.  The  ob- 
ject for  which  they  have  been  invested  is  the  creation  of 
products.  Hence,  the  greater  this  product  is,  the  more 
successful  the  investment,  the  better  is  it  for  the  individ- 
ual, and  the  better  is  it  for  the  community.  The  object 
of  the  farmer  is,  with  a  given  soil,  a  given  expenditure  of 
labor,  of  seed  and  of  manure,  to  raise  the  greatest  amount 
of  value,  in  a  harvest.  This  will  generally,  though  not 
always,  be  as  the  quantity.  Fifty  bushels  of  common 
apples  will  not  sell  for  so  much  as  forty  bushels  of  good 
ones.  One  hundred  pounds  of  coarse  wool,  will  sell  for 
much  less  than  one  hundred  pounds  of  fine  wool.  Hence, 
his  object  should  be,  from  a  given  expenditure,  to  derive 
the  greatest  amount  of  profit.  It  is  by  thus  adjusting  his 
expenditure,  and  thus  calculating  the  results,  that  an 
intelligent  and  thoughtful  farmer  will  grow  rich,  while 
all  around  him  are  remaining  stationary  or  are  growing 
poor. 

So,  it  is  the  business  of  the  manufacturer  to  create, 
with  a  given  expenditure,  the  greatest  amount  of  value. 
If  he  can  succeed  in  giving  to  his  cloth  a  better  dye,  or  can 
produce  a  more  durable  or  a  more  tasteful  fabric,  or  can 
adapt  it  better  to  the  satisfying  of  any  human  want,  its 
value  is,  by  so  much  increased,  and  he  and  the  commu- 
nity are  the  better  for  the  increased  value  of  his  produc- 
tion. 

It  is  evident,  that,  in  order  to  do  this,  a  systematic 
knowledge  of  the  principles  of  any  employment  is  necea- 


ECONOMY  OF  LABOR.  125 

sary  to  the  individual  by  whom  it  is  carried  on.  A  man, 
in  order  to  be  a  skilful  producer,  must  be  acquainted  with 
the  laws  of  production,  that  is,  those  laws  of  nature  and  of 
society  which  govern  the  transaction  in  which  he  is  en- 
gaged. Hence  the  importance  of  accurate  knowledge,  and 
sound  mental  discipline,  to  all  classes  of  society. 

We  see,  in  the  above  remarks,  another  illustration  of 
the  truth,  that  the  benefit  of  one  is  the  benefit  of  all,  and 
the  injury  of  one  is  the  injury  of  all.  If  a  man  economize 
labor  and  capital,  he  increases  his  own  wealth,  and  he  also 
rescues  as  much  as  he  saves,  from  actual  destruction.  The 
whole  of  this  amount  may  go  to  the  further  increase  of 
production,  or  to  the  satisfying  of  human  wants.  The 
more  he  produces,  the  greater  is  his  wealth  ;  and  the 
greater  is  the  value  which  is  created  for  the  good  of  the 
whole  community. 

As  it  is  manifestly  for  the  interest  of  the  individual,  so 
is  it  for  the  interest  of  the  society,  that  every  producer 
should  consume  as  little  value,  and  produce  as  great  value, 
as  possible.  Hence  the  impolicy  of  those  restrictions 
which  will  not  allow  the  individual  to  purchase  and  to  sell 
where  he  pleases.  If  he  must  give  a  higher  price  than  is 
necessary  for  his  material,  this  is,  by  the  difference,  un- 
profitable consumption.  If  he  cannot  dispose  of  it  where 
he  pleases,  this  is  by  so  much,  unprofitable  production, 
because  he  is  unable  to  realize  from  his  production  as 
much  as  he  would  be  able  to  realize  were  he  left  to  him- 
self. 

2.  Consumption  for  the  Gratification  of  De- 
sire.— Under  this  head  the  following  kinds  of  legitimate 
gratification  may  be  enumerated. 

a.  Gratifications  which  pertain  directly  to  the  preserva- 
tion of  Health  and  Life.  What  are  called  the  necessaries 
of  life,  food,  clothing  and  shelter,  are  here  included.  All 


126  CONSUMPTION. 

men  require  these  in  some  form  and  in  some  degree.  To 
provide  all  with  a  due  quota  of  them  is  a  matter  of  first 
importance.  It  is  impossible  to  draw  an  absolute  line  of 
demarcation  between  necessaries  and  superfluities.  The 
terms  are  always  used  relatively,  having  respect  to  climate, 
grade  of  civilization,  occupation,  social  position,  private 
property,  —  the  varying  outward  circumstances  of  men: 
and  also  to  the  taste,  temperament,  education  and  bodily 
health  of  different  persons.  For  the  pariah  of  India,  a 
bamboo  hut,  a  measure  of  rice  and  a  fe\v  yards  of  cotton 
cloth  provide  all  the  necessaries  of  life.  A  respectable 
citizen  of  New  York  would  require  values  a  hundred-fold 
greater  to  meet  his  necessities.  Yet  every  man  has  more 
or  less  distinctly  defined  to  his  own  mind,  a  list  of  things 
which  are  for  him  and  his  family,  necessities,  things  that 
must  be  provided  and  consumed  to  sustain  life,  as  they 
live. 

b.  Gratifications  which  delight  the  Senses  and  Tastes. 
This  class,  in  addition  to  things  indispensable,  includes 
delicacies  for  the  table,  elegancies  of  dress  and  equipage, 
ornaments,  beauties  of  fine  art  in  painting,  statuary,  archi- 
tecture and  music,  public  exhibitions  to  please  the  eye  and 
the  ear — what  are  commonly  termed  Luxuries.  The  de- 
sires which  run  in  this  direction  are  natural.  They  are 
multiplied  and  stimulated  by  individual  and  social  culture. 
Their  gratification  properly  regulated,  is  elevating  and  re- 
fining and  has  the  effect  indirectly  to  incite  invention, 
quicken  industry  and  increase  production.  Under  the 
exercise  of  sound  economy,  means  for  these  gratifications 
may  be  drawn  from  the  resources  of  nature,  by  human 
skill  and  genius,  and  may  be  quite  generally  distributed. 
It  is  morally  and  socially  healthful  for  people  of  every  class 
and  condition  to  enjoy  some  things  which  they  esteem 
luxuries.  The  potato-patch  will  yield  no  less  for  the 
beauty  of  flowers  growing  on  the  border.  The  necessaries 


INTELLECTUAL  GRATIFICATIONS.  127 

of  the  home  will  be  enjoyed  with  a  better  relish  for  a  taste- 
ful carpet  on  the  floor  and  bright  pictures  on  the  walls. 

There  is  need  however,  to  note  the  danger  of  excess  and 
abuse  connected  with  this  class  of  gratifications.  Appe- 
tites unnaturally  formed  and  unduly  pampered,  run  into 
passions  which  cannot  be  satisfied,  and  lead  to  indulgences 
which  are  ruinous  to  body  and  mind,  producing  misery 
instead  of  happiness.  Where  objects  of  beauty,  the  pro- 
ducts of  fine  art,  are  valued  only  as  things  that  everybody 
cannot  have,  and  minister  chiefly  to  a  desire  for  vain  osten- 
tation, they  breed  discontent,  euvyings  and  jealousies 
which  are  the  bane  of  happiness.  Fashion  offen  usurps 
the  throne  and  rules  with  despotic  tyranny  in  this  depart- 
ment of  gratification,  commanding  wasteful  and  exhaust- 
ing extravagances.  The  Scriptures  therefore  justly  con- 
demn these  excesses  and  perversions  of  sense  and  taste  as 
"  the  lust  of  the  flesh,  the  lust  of  the  eye  and  the  pride  of 
life." 

The  degree  to  which  a  person  may  properly  expend  his 
means  on  these  gratifications,  must  depend  on  the  wealth 
at  his  command,  his  social  position,  his  culture  and  his 
true  and  healthy  taste.  The  desires  need  to  be  regulated 
by  a  due  regard  to  the  future  as  well  as  to  the  present 
well-being ;  and  actual  practice  should  be  modified  by 
regard  to  others'  well-being  as  well  as  one's  own. 

c.  Intellectual  Gratifications  derived  from  the  very  ex- 
ercise of  the  mind's  powers  and  the  acquisition  of  knowl- 
edge. The  chief  outlays  here  are  for  books,  apparatus, 
experiments,  lectures,  etc.  These  affect  the  higher  part 
of  men's  nature  and  yield  a  kind  of  pleasure  exceedingly 
rich  and  pure,  while  the  consumption  of  wealth  involved 
is  very  small  in  proportion  to  the  satisfaction  realized. 
All  are  capable  in  a  greater  or  less  degree  of  enjoyment 
from  this  source,  and  the  capacity  for  it  increases  as 
provision  for  it  is  enlarged.  The  highest  welfare  of  indi- 


128  CONSUMPTION. 

vidnals  and  of  society  is  promoted  by  ministering  snch 
gratifications.  By  offering  a  fit  substitute,  they  furnish 
the  best  check  to  ruinous  sensual  indulgences.  Hence  it  is 
wise  economy  to  foster  desire  in  this  direction  by  ample 
provision  for  its  gratification. 

d.  Social  Gratifications  through  the  exercise  of  hospi- 
tality and  all  acts  of  friendliness,  and  through  the  varied 
contact  of  men  with  one  another,  in  the  small  circle  of 
intimate  associates,  in  festive  assemblies  and  in  extensive 
travel  about  the  world  we  live  in.     The  desire  for  such 
gratifications  springs  from  the  constitution  of  our  nature, 
as  beings  formed  for  mutual  intercourse  and  fellowship. 
By  them,  society  is  bound  together  by  the  most  healthful 
and  the  strongest  ties,  and  the  general  happiness  is  greatly 
promoted. 

e.  Moral  Gratifications  through  the  culture  of  a  good 
conscience  toward  God  and  toward  men  and  the  exercise  of 
benevolence.     These  involve  some  expenditures  for  the  sup- 
port of  religious  institutions  and  in  the  charitable  bestow- 
ment  of  a  portion  of  one's  wealth  on  others  for  their  tem- 
poral relief  and  their  spiritual  improvement.     They  touch 
the  noblest  and  purest  capacities  of  our  nature  and  yield 
the  richest  satisfaction — a  satisfaction  not  limited  to  the 
moment  of  gratification,  but  abiding  for  the  life-time  of 
the  soul.     This  kind  of  gratification  may  come  within  the 
reach  of  all.     The  degree  of  satisfaction  is  measured,  not 
by  the  grandeur  of  the  religious  service,  nor  by  the  amount 
of  the  beneficent  gift,  but  by  the  sincerity  and  heartiness 
of  the  worshiper  and  the  self-sacrificing  good-will  of  the 
giver. 

Some  Rules  of  Economy  which  apply  to  consump- 
tion for  the  gratification  of  desire  are  worthy  of  notice. 
As  in  consumption  for  Reproduction,  so  here,  they  respect 
both  capital  and  labor. 


A  particular  gratification  having  been  resolved  npon, 
sound  economy  dictates  that  the  consumption  of  values  be 
as  small  as  is  consistent  with  the  accomplishment  of  our 
purpose  This  forbids  us  to  purchase  more  of  any  value 
than  is  wanted.  The  articles  ordinarily  consumed  in  a 
family,  are  rapidly  destructible.  If  more  be  purchased 
than  is  wanted,  it  is  liable  to  become  useless,  and  in  this 
case,  the  loss  of  this  excess  is  total.  By  having  a  supera- 
bundance of  any  thing  consumable,  it  becomes  in  the  eyes 
of  those  who  use  it,  less  valuable,  and  is  used  less  care- 
fully. And  if  neither  of  these  results  be  experienced,  if 
an  article  be  purchased  a  year  before  it  is  wanted,  the  pur- 
chaser loses  the  interest  for  a  year  of  the  money  expended. 
This  must  be  considered  in  deciding  the  question  whether 
to  purchase  supplies  by  wholesale  or  by  retail. 

By  this  rule,  it  is  unwise  also  to  purchase  any  thing 
because  it  is  cheap.  If  a  man  need  any  thing,  its  cheap- 
ness is  a  reason  why  he  should  buy,  but  if  he  do  not  want 
it,  its  cheapness  is  no  reason  at  all.  A  man  may  buy 
stones  very  cheap,  but  it  is  doubtful  whether  he  would  be 
either  enriched  or  made  happier  by  the  purchase.  Many 
a  garret  is  filled  with  great  bargains,  which  were  pur- 
chased because  they  were  cheap,  and  then  laid  away  to 
rot. 

Again,  the  con  sumption  should  Se  as  perfect  as  possible. 
When  we  have  possessed  ourselves  of  a  substance,  it  should 
not  be  thrown  away  until  every  utility  which  it  possesses 
has  been  exhausted.  Thus  an  article  of  clothing  which 
will  not  answer  any  longer  for  one  purpose,  may  answer 
very  well  for  another.  An  article  of  food,  which  may  not 
be  used  in  one  form,  may  be  used  in  some  other  form. 
And  hence,  in  general,  nothing  should  come  into  a  house 
unless  it  be  wanted,  nor  in  a  larger  amount  than  is 
wanted  ;  and  nothing  should  leave  it  until  all  its  utility  is 
exhausted. 

6* 


130  CONSUMPTION. 

Economy  dictates  further  that  all  means  should  be  pro- 
vided for  the  most  perfect  consumption  of  values.  Hence, 
every  useful  utensil  should  be  furnished,  and  should  be 
the  most  perfect  of  its  kind.  It  is  cheaper  to  buy  a  coal- 
hod  than  to  carry  coal  in  a  basket,  and  by  saving  a  dollar 
in  a  utensil,  ruin  a  carpet  worth  fifty  dollars.  It  is 
cheaper  to  have  every  description  of  culinary  vessel  that 
may  be  needed,  than  to  have  food  spoiled  by  being  cooked 
in  an  unsuitable  instrument.  It  is  cheaper  to  have  a  bad 
fire-place  altered,  at  an  expense  of  fifteen  dollars,  than  to 
consume  annually  ten  dollars  worth  more  of  wood  than  is 
necessary. 

Hence,  it  is  also  important  that  every  article  purchased 
be  of  such  a  nature  as  will  admit  of  the  most  profitable 
consumption.  If  a  man  buy  fuel  which  gives  off  very  lit- 
tle heat,  because  it  is  at  a  low  price,  it  is  by  no  nmeans 
certain  that  he  has  made  a  successful  purchase.  It  should 
always  be  remembered  that  we  want  a  given  amount  of 
utility,  and  not  the  mere  form  in  which  it  seems  to  reside. 
It  is  cheaper  to  purchase  a  dollar's  worth  of  utility  for  a 
dollar,  than  half  a  dollar's  worth  for  seventy-five  cents. 

The  same  principles  apply  to  labor.  Economy  directs 
that  in  a  household  we  should  purchase  as  much  labor  as 
we  need,  and  of  the  kind  that  we  need,  but  no  more  than 
we  need.  When  we  pay  for  useless  labor,  we  throw  money 
away  ourselves.  When  we  employ  incompetent  labor,  we 
pay  others  to  throw  it  away  for  us. 

These  are  the  principal  considerations  which  should 
govern  our  expenditures.  And  it  will  be  seen  that  they 
apply  to  all  the  conditions  of  men.  Whether  our  expen- 
diture be  large  or  small,  it  should  be  conducted  with 
economy.  The  object  to  be  attained  is,  to  secure  as  large 
an  amount  of  gratification,  at  as  small  an  expenditure  as 
possible.  To  the  man  who  has  but  two  hundred  dollars 
per  year  to  spend,  it  is  certainly  important  to  spend  it 


HOUSEHOLD   ECONOMY.  131 

economically.  To  the  man  who  has  ten  thousand  dollars 
per  year,  it  will  generally  be  found  convenient. 

Hence,  it  will  be  seen  that  in  order  to  enjoy  the  com- 
forts or  the  luxuries  of  life,  at  the  least  expense,  care  and 
superintendence  and  knowledge  of  the  various  operations 
performed  in  a  household,  are  absolutely  necessary.  And 
as  this  department  of  consumption  generally  devolves 
upon  the  mistress  of  a  family,  we  see  how  important  to 
the  execution  of  it  with  success,  must  be  vigilance,  care, 
intelligence  and  industry.  The  husband,  by  the  employ- 
ment of  capital,  labor  and  skill  in  productive  consump- 
tion, secures  an  annual  revenue  for  the  purpose  of  con- 
sumption in  the  various  means  of  gratification,  whether 
necessary  or  superfluous.  The  expenditure  of  this  annual 
revenue,  or  the  making  of  those  arrangements  which  gov- 
ern the  expenditure,  generally  devolves  upon  the  wife. 
If  that  expenditure  be  made  without  economy,  either  the 
gratifications  which  it  might  procure  are  never  enjoyed, 
and  by  all  the  consumption,  neither  comfort  nor  pleasure 
is  obtained  ;  or  else  if  the  gratification  sought  for  be  ob- 
tained, it  is  obtained  at  an  expense  absolutely  ruinous. 
Hence,  it  will  be  seen  that  the  physical  comfort,  as  well 
as  the  means  of  happiness  of  both  parties,  depends  more 
on  the  domestic  education  of  the  female  sex  than  is  ordi- 
narily supposed.  Affection  will  rarely  exist  in  the  atmos- 
phere of  self-inflicted  poverty.  Xo  man  can  respect  a 
woman,  by  whose  caprice  and  ignorance  of  her  appropriate 
duties,  he  is  plunged  into  disgraceful  bankruptcy,  and 
wedded  to  hopeless  penury.  Nor  let  it  be  supposed  that 
no  talent  is  requisite  skillfully  to  superintend  a  household. 
It  requires  at  least,  as  much  ability  to  direct  with  skill, 
and  on  principle,  the  affairs  of  a  domestic  establishment, 
as  to  select  a  ribbon  or  dance  a  minuet,  to  finger  a  piano 
or  to  embroider  a  fire-screen. 

Sound  economy   also   suggests   certain   considerations 


132  CONSUMPTION. 

respecting  the  selection  of  our  gratifications.  Where  the 
amount  of  gratification  in  two  cases  is  equal,  it  is  wise  to 
choose  that  ivhich  is  the  least  expensive.  The  reason  for 
this  is  too  obvious  to  need  much  illustration.  If  a  particu- 
lar gratification  can  be  procured  for  one  hundred  dollars, 
and  another  which  will  afford  an  equal  amount  of  happi- 
ness can  be  procured  for  ten  dollars,  the  cheaper  is  to  be 
preferred  ;  because,  while  in  this  case  we  obtain  an  equal 
gratification,  we  have  ninety  dollars  remaining  with  which 
to  purchase  other  objects  of  desire. 

When  two  modes  of  gratification  are  in  themselves 
equally  productive  of  happiness,  but  of  which  one  tends  to 
the  wealth,  and  the  other  to  the  poverty,  both  of  the  indi- 
vidual and  of  society,  the  former  is  to  be  preferred. 
Thus,  if  it  cost  the  same  sum  to  spend  an  evening  in  in- 
tellectual improvement  that  it  would  cost  to  spend  it  in 
a  drunken  frolic,  and  the  pleasure  in  the  two  cases  were 
the  same,  inasmuch  as  intellectual  cultivation  tends  to 
knowledge,  which  is  a  valuable  consideration  to  every  pro- 
ducer, and  a  drunken  frolic  has  no  such  tendency,  econ- 
omy would  teach  us  to  spend  the  evening  in  intellectual 
cultivation. 

If  now  we  compare  the  various  modes  of  expenditure 
most  common  among  men,  it  will  appear  evident  that 
the  economy  of  the  moral  and  intellectual  pleasures  is 
somewhat  overlooked. 

The  expenditures  for  all  the  real  wants  and  conve- 
niences of  a  human  being,  may,  by  industry  and  frugality, 
without  great  difficulty  be  supplied.  It  does  not  cost 
much  to  provide  all  that  we  need  for  wholesome  and  pal- 
atable food,  for  comfortable  clothing  and  shelter,  and  for 
all  the  furniture  demanded  for  convenient  domestic  ar- 
rangements. Our  greatest  expenses  are  for  those  objects 
which  yield  no  other  utility  than  the  mere  gratification  of 
the  senses,  or,  which  are  rendered  necessary  by  command 


MORAL  AND   INTELLECTUAL  GRATIFICATIONS.        133 

of  fashion,  or  the  love  of  ostentation.  Thus,  in  the  pur- 
chase of  a  garment  or  of  an  article  of  furniture,  a  part  of 
the  price  is  paid  for  the  real  utility  which  it  possesses,  and 
the  remainder  for  that  particular  form,  or  color,  or  work- 
manship, which  is  designated  by  fashion.  Now,  it  fre- 
quently happens  that  this  latter  portion  of  the  price  is 
far  greater  than  the  former.  The  same  may  be  said  of 
many  of  our  expenses  of  the  table,  and  of  various  others. 

Now,  that  men  should  not,  if  they  have  the  ability,  in 
any  manner  gratify  their  senses,  and  yield  obedience  to 
fashion,  it  is  not  necessary  here  to  affirm  ;  nor  is  it  neces- 
sary that  political  economy  should  prescribe  the  limit 
within  which  these  gratifications  shall  be  confined.  A  few 
considerations,  for  the  sake  of  illustrating  the.  comparative 
economical  advantages  of  other  modes  of  gratification,  is 
all  that  will  be  here  attempted. 

Moral  and  intellectual  pleasures  are  by  no  means  expen- 
sive. To  spend  time  in  moral  cultivation,  is  no  more  ex- 
pensive than  to  spend  it  thoughtlessly  and  frivolously.  The 
time  consumed  in  thoughtless  dissipation,  if  employed  in 
moral  culture,  would  be  sufficient  to  effect  great  changes 
in  our  habits  and  tastes. 

The  pleasures  of  benevolence,  so  far  as  pecuniary  Con- 
sumption is  concerned,  are  less  expensive  than  those  of  the 
senses.  Were  the  sums  lavished  in  thoughtless  caprice  in 
obedience  to  fashion,  or  in  the  gratification  of  appetite,  to 
be  reserved  for  charity,  how  great  an  amount  of  happi- 
ness might  be  created  both  in  the  benefactor  and  the  re- 
cipient. 

The  same  may  be  said  of  intellectual  pleasures.  Books, 
and  all  the  means  for  intellectual  gratification,  may  be  had 
at  an  expense  within  the  reach  of  a  very  large  class  of  the 
community.  The  useless  ornaments  of  a  drawing  room, 
would  frequently  purchase  a  considerable  library.  The 
sums  of  money  annually  paid  by  most  families,  to  satisfy 


134  CONSUMPTION. 

the  demands  of  fashion,  would  provide  them  with  as  much 
reading  as  they  would  desire.  Now,  when  these  two  kinds 
of  pleasure  are  equally  set  before  us,  and  when  the  one 
may  be  procured  at  so  much  less  expenditure  than  the 
other,  it  surely  is  worth  the  attention  of  every  man,  de- 
liberately to  inquire  by  which  mode  of  investment  he  will 
best  secure  his  own  happiness.  There  seems  something 
ill -ad  justed,  when  the  habitation  of  a  moral  and  ihtellect- 
ual  being  reminds  us  of  everything  thing  else  rather  than 
that  he  is  either  moral  or  intellectual. 

Moral  and  intellectual  pleasures  tend  to  the  wealth  both 
of  the  individual  and  of  society. 

The  exercise  of  benevolence  has  several  important  eco- 
nomical tendencies.  For  instance,  it  tends  directly  to  cul- 
tivate the  habits  of  self-denial  and  self-government  which 
are  so  essential  both  to  industry  and  frugality.  Sensual 
self-indulgence  tends  directly  to  produce  both  indolence 
and  capricious  and  reckless  expenditure. 

Again,  the  habit  of  benevolence  tends  to  moderate  and 
correct  that  intense  love  of  gain,  which  is  so  frequently  the 
cause  of  ruin  to  enterprising  men.  In  the  management 
of  any  hazardous  business,  he  will  be  the  most  likely  to 
succeed  who  looks  with  entire  coolness  on  the  chances  of 
loss  and  gain.  The  too  eager,  governed  by  their  imagina- 
tion, rush  into  needless  danger.  The  too  cautious  allow  a 
fair  prospect  of  advantage  to  pass  by  unimproved.  The 
one  is  as  liable  to  fail  as  the  other.  He  who,  by  the  prac- 
tice of  benevolence,  has  learned  a  more  accurate  estimate 
of  the  blessings  of  wealth,  will  more  probably  than  either, 
judge  correctly.  The  miser  and  the  sensualist  will  fall 
into  opposite  extremes,  one  upon  each  side  of  him. 

Besides,  the  social  benefits  of  benevolence  are  incalcu- 
lable. It  unites  together  the  various  classes  of  men  by  the 
strong  ties  of  affection  and  gratitude.  By  bringing  all 
classes  of  men  more  directly  under  the  view  of  the  whole 


MORAL   AND   INTELLECTUAL  GRATIFICATIONS.       135 

mass  of  society,  social  responsibility  is  increased,  and  tho 
encouragements  to  virtue  and  the  restraints  upon  vice  are 
strengthened.  When  the  rich  are  hard-hearted  and  luxu- 
rious, the  poor  are  disaffected,  anti-social,  and  destructive. 
In  so  far  as  benevolence,  therefore,  tends  to  the  improve- 
ment of  the  social  dispositions  of  men,  it  may  lay  claim  to 
great  economical  advantages. 

And  the  same  is  true  of  intellectual  pleasures.  A  man 
cannot  enjoy  these  without  improving  his  mind,  and  ren- 
dering it  a  more  valuable  instrument  both  for  the  promo- 
tion of  his  future  happiness,  and  the  accumulation  of 
wealth.  Knowledge  is  power,  in  what  sphere  of  life  so- 
ever it  be  exerted.  The  gratification  of  the  senses  ener- 
vates the  body,  enfeebles  the  mind,  and  tends  to  render 
intellectual  exercise  unpleasant,  and  to  unfit  us  for  any 
important  or  highly  responsible  exertion. 


CHAPTER  XI. 


PUBLIC  CONSUMPTION. 

The  Nature  of  Public  Consumption. — The  gath- 
ering of  many  individuals  into  a  community  gives  rise  to  a 
peculiar  class  of  common  wants,  which  may  be  termed  the 
wants  of  Society.  To  satisfy  these  wants,  a  part  of  the 
annual  revenue  of  every  member  of  society  is  contributed 
in  some  measure  to  the  public  and  is  expended  by  the  pub- 
lic agents,  that  is  by  the  Government. 

This  expenditure  is  provided  for  by  means  of  Taxation. 
When  a  given  sum  is  to  be  raised  for  the  accomplishment 
of  any  object,  it  is,  by  some  mode  of  assessment,  distrib- 
uted among  the  various  individuals  of  the  community,  and 
every  one  is  obliged  to  pay  the  proportion  with  which  he  is 
charged.  The  sum  thus  collected  is  then,  for  the  accom- 
plishment of  various  purposes,  consumed  by  public  agen- 
cies. The  consumption  itself  is  of  precisely  the  same 
nature  as  that  effected  by  individuals,  that  is,  the  value  is 
destroyed,  the  utility  consumed  is  annihilated.  If  an  in- 
dividual burn  gunpowder,  its  value,  measured  by  the  labor 
and  material  by  which  it  was  produced,  is  destroyed  ;  if  a 
hundred  or  a  thousand  men  do  it,  the  result  is  the  same. 
If  a  man  in  the  digging  of  a  ditch  consume  the  labor  of  a 
thousand  workmen,  and  use  the  provisions  necessary  for 
their  sustentation,  the  whole  value  thus  expended  is  annihi- 
lated. And  if  a  thousand  men  unite  in  the  undertaking, 
the  annihilation  is  the  same.  In  a  word,  government  is 


PUBLIC   EXPENDITURE.  13? 

nothing  but  a  system  of  agencies  ;  and  property  consumed 
by  the  government,  is  as  really  consumed,  and  its  value  as 
really  destroyed,  as  though  the  individual  citizens  con- 
sumed it  themselves. 

Now,  this  being  the  fact,  the  rule  by  which  consump- 
tion is  to  be  judged  of,  is  precisely  the  same,  whether  it  is 
public  or  private.  If  the  product  created  by  the  consump- 
tion, whether  that  product  be  material  or  immaterial,  is 
of  greater  value  than  the  product  consumed,  it  is  profitable 
consumption  ;  that  is,  the  public  receive  in  return  a 
greater  value  than  they  parted  with.  If  a  less  valuable 
product  be  created  than  is  consumed,  it  is  unprofitable 
consumption,  and  the  value  might  better  have  remained  in 
the  hands  of  individuals.  If  no  product  whatever  be  real- 
ized, it  is  a  total  loss,  and  the  value  taken  from  the  indi- 
viduals might  as  well  have  been  thrown  into  the  sea.  Nay, 
had  they  themselves  thrown  the  value  consumed  into  the 
sea,  there  would  have  been  a  gain,  as  the  expense  of  col- 
lecting and  consuming  it  would  have  been  saved.  And 
still  more,  if  the  value  consumed  produce  no  valuable 
results,  but  on  the  contrary,  be  employed  to  promote  the 
purposes  of  oppression  and  misrule,  the  evil  is  enormous. 
The  possessions  of  the  individual  are  taken  away,  not  only 
without  rendering  him  an  equivalent,  but  for  the  sake  of 
employing  other  men  to  torment,  and  deprive  him  of  his 
dearest  rights. 

It  is  frequently  asserted,  that  public  expenditure  en- 
riches a  country,  or  that  at  least,  it  is  wholly  innocent, 
since  it  quickens  the  circulation  of  money,  and  does  no 
harm,  inasmuch  as  all  the  money  always  remains  in  the 
country.  To  obviate  such  an  objection,  let  us  trace,  from 
first  to  last,  the  passage  of  a  product  toward  ultimate  con- 
sumption on  the  public  account. 

"  The  government  exacts  from  the  tax-payers,  the  payment  of  a 
given  sum  in  the  shape  of  money.  To  meet  this  demand,  the  tax- 


138  CONSUMPTION. 

payer  exchanges  part  of  the  products  at  his  disposal  for  coin,  which 
he  pays  to  the  tax-gatherer.  A  second  set  of  government  agents  is 
busied,  in  buying  with  that  coin,  clothing  and  other  necessaries  for 
soldiery.  Up  to  this  point,  there  is  no  value  either  lost  or  consumed  ; 
there  has  only  been  a  gratuitous  transfer  of  value  and  a  subsequent 
act  of  barter,  but  the  value  contributed  by  the  citizen  still  exists  in 
the  shape  of  stores  and  supplies  in  the  military  depot.  In  the  end, 
however,  this  value  is  consumed,  and  then  the  portion  of  wealth 
which  passes  from  the  hands  of  the  tax-payer  into  those  of  the  tax- 
gatherer,  is  destroyed  and  annihilated. 

"  Yet  it  is  not  the  sum  of  money  that  is  destroyed  ;  that  has  only 
passed  from  one  hand  to  another,  either  with  or  without  any  return, 
as  when  it  passed  from  the  tax-payer  to  the  tax-gatherer  ;  or  in  ex- 
change for  an  equivalent,  as  when  it  passed  from  the  government 
agent  to  the  contractor,  for  clothing  and  supplies.  The  value  of  the 
money  survives  the  whole  operation,  and  goes  through  thr ^e  or  four, 
or  a  dozen  hands,  without  any  sensible  alteration.  It  is  the  value  of 
the  clothing  and  necessaries  that  disappears,  with  precisely  the  same 
effect  as  if  the  tax-payer  had,  with  the  same  money,  purchased  cloth- 
ing and  necessaries  for  his  own  private  consumption."  * 

Consumption,  then,  is  of  the  same  nature,  whether  it 
be  public  or  private.  It  is  a  destruction  of  value  ;  and 
the  rule  by  which  we  are  to  determine  whether  it  be  profit- 
able or  unprofitable,  is  the  same  in  both  cases.  It  is  by 
inquiring,  whether  the  benefit  created  by  the  consumption 
is  greater  than,  equal  to,  or  less  than,  the  value  of  the  pro- 
duct consumed. 

While,  however,  this  rule  is  always  to  be  adopted,  it  is, 
as  in  the  case  of  individual  consumption,  to  be  interpreted 
with  a  liberal  and  intelligent  forecast.  It  must  not,  of 
course,  always  be  expected,  that  the  product  created  by 
consumption,  will  be  a  visible,  tangible,  material  sub- 
stance. Thus  we  see  no  physical,  tangible  product,  as  tbe 
result  of  taxes  for  the  support  of  civil  government.  But 
we  receive  the  benefit  in  security  of  persons,  property,  and 
reputation  ;  or  in  that  condition  of  society  which,  though 

*Say. 


PUBLIC    EXPENDITURE.  139 

it  be  incapable  of  being  weighed  and  measured,  is  abso- 
lutely essential  both  to  individual  happiness,  and  individ- 
ual accumulation.  The  same  may  be  said,  in  substance, 
concerning  the  taxes  paid  for  general  education.  Here, 
whether  the  tax-payer  receives  his  remuneration  in  instruc- 
tion given  to  his  own  children,  or  not,  he  yet  receives  it, 
in  the  improvement  of  the  intellectual  and  social  character 
of  his  neighbors,  by  which  his  property  is  rendered  more 
secure,  the  labor  which  he  pays  is  better  performed,  and 
the  demand  for  whatever  he  produces,  is  more  universal 
and  more  constant.  The  same  may  be  said  of  that  public 
expenditure  by  which  the  moral  and  social  character  of  a 
community  is  elevated,  the  taste  of  a  nation  refined,  and 
an  impulse  given  to  effor-ts  for  the  benefit  of  man.  With 
this  view,  no  one  could  oppose  the  expense  incurred  in  be- 
stowing upon  public  edifices  elegance,  or  even,  in  some 
cases  magnificence  of  structure  ;  in  the  public  celebration 
of  remarkable  eras  ;  and  in  the  rewards  bestowed  upon 
those  who  have  by  their  discoveries  enlarged  the  bound- 
aries of  human  knowledge,  or  by  their  inventions,  signally 
improved  the  useful  arts.  Political  Economy  is  opposed 
to  none  of  these  forms 'of  expenditure  ;  all  that  she  requires 
is,  that  a  valuable  consideration  be  received  in  return  for 
the  consumption  ;  and  that  the  consumption  be  not  dis- 
proportionate to  that  consideration. 

The  principles  and  methods  of  Taxation  come  more 
properly  under  the  head  of  Distribution  and  will  be  dis- 
cussed in  our  third  Division  of  the  science. 

The  Purposes  to  -which  Public  Consumption 
is  properly  applied  may  be  specified  as  follows. 

1.   For  the  Support  and  Administration  of  Government. 

This  is  by  far  the  most  necessary  of  any  of  the  objects 
of  public  expense.  Without  government  there  could  be 
no  society,  and  without  society,  there  could  neither  be  re- 


140  CONSUMPTION. 

dress  of  wrong,  nor  security  of  property.  But  government 
cannot  be  administered  without  officers,  and  no  one  will 
devote  himself  to  the  discharge  of  the  duties  of  civil  office, 
unless  he  be  paid  for  it. 

The  principles  which  should  govern  this  branch  of  ex- 
penditure, are  few  and  simple. 

Economy  requires  that  precisely  such  talent  should  be 
employed,  in  the  various  offices  of  civil  government,  as 
may  be  necessary  to  insure  the  discharge  of  the  duties  of 
each  office  in  the  best  possible  manner.  Many  of  these 
offices  can  be  discharged  successfully,  only  by  the  first 
order  of  human  talent,  cultivated  by  learning  and  disci- 
pline, and  directed  by  incorruptible  integrity.  Now  it  is 
certainly  bad  economy,  to  employ  inferior  talent  to  do 
badly,  that  which  can  be  of  service  only  when  it  is  done 
well. 

Hence  the  salaries  of  judicial,  legislative,  and  executive 
officers  should  be  such  as  will  command  the  service  of  such 
talent  as  the  duties  of  each  office  require.  It  is  most  un- 
wise parsimony,  to  give  to  a  judge  such  a  salary  as  will 
command  the  services  of  nothing  more  than  a  third  rate 
lawyer  :  and  it  is  mean  to  ask  an  individual  to  do  a  ser- 
vice for  the  community,  at  a  lower  rate  than  that  at  which 
he  would  do  it  for  an  individual. 

In  answer  to  this,  it  may  be  said,  that  by  bestowing 
large  salaries  upon  the  officers  of  government,  we  present 
temptations  to  avarice.  But  the  reduction  of  salaries  by 
no  means  diminishes  the  evil.  Were  emolument  to  be 
reduced,  there  would  always  be  a  contest  for  office.  The 
only  question  then  is,  whether  we  shall  have  the  contest 
between  men  of  high  or  between  men  of  low  character  ; 
between  those  who  are  capable  of  serving  us  to  our  advan- 
tage, or  those  who  are  only  capable  of  serving  us  to  our 
disadvantage.  Were  the  most  important  trusts  in  the 
government  to  command  no  higher  salaries  than  the  wages 


EXPENDITURES   FOR   CIVIL   SERVICE.  141 

of  day  laborers,  there  would  be  as  great  competition  for 
them  as  at  present ;  only  then,  the  great  contest  would  be 
between  day  laborers,  instead  of  being  between  men  of 
professional  ability. 

Here,  however,  the  general  principles  of  wages  should 
have  their  full  effect.  For  instance,  where  an  office  con- 
fers rank  or  dignity,  or  indicates  professional  eminence, 
the  emolument  should  be  less  than  would  otherwise  be 
paid  for  the  same  amount  of  service.  Again  :  when  an 
office  is  permanent,  the  emolument  should  be  less  than 
when  it  is  temporary.  But  on  the  other  hand,  if  it  be  in- 
sisted upon,  that  neither  rank  nor  consideration  shall  be 
allowed  to  the  public  officer,  but  that  all  men  are  and 
must  show  themselves  to  be  on  a  level,  the  remuneration 
of  office  should  be  higher.  And  also,  when  an  office  is 
temporary,  and  the  having  held  it,  disenables  the  incum- 
bent for  subsequent  professional  employment,  the  remu- 
neration should  rise  accordingly.  In  such  cases  a  pension 
should  be  attached  to  the  office,  if  its  duties  for  a  given 
time  have  been  faithfully  discharged. 

Altogether  at  variance  with  these  principles  is  the  prac- 
tice of  making  appointments  to  civil  office  as  a  reward  for 
partisan  political  activity,  or  from  personal  relationship  or 
attachment,  without  regard  to  fitness  for  the  duties.  Con- 
sidering the  amount  and  variety  of  service  needed  and  the 
responsible  trusts  involved,  true  economy,  which  always 
means  efficiency  in  the  administration  of  public  affairs, 
demands  that  in  the  civil,  as  in  the  military  and  naval 
service,  there  should  be  a  preliminary  training,  tested  by 
thorough  examinations,  and  a  regular  system  of  promotions 
according  to  merit  and  time  of  service,  with  emoluments 
sufficient  to  encourage  permanence  and  fidelity.  When  in 
these  matters,  the  science  of  Political  Economy  shall  sup- 
plant the  chicanery  of  Party  Politics,  the  nation  will  be 
saved  millions  of  wealth  as  well  as  the  mischief  and  shame 
of  abounding  corruption. 


142  CONSUMPTION". 

2.  Expenditures  for  Works  of  public  Convenience  and 
Advantage,  commonly  called  Public  Improvements.  In 
this  category  are  included  such  items  as  paving,  cleaning 
and  lighting  the  streets  of  a  city,  providing  water-works 
and  sewerage,  constructing  roads,  canals  and  railways,  im- 
proving harbors,  building  and  sustaining  light-houses, 
making  surveys  for  the  safety  of  navigation,  clearing  the 
channels  of  rivers  and  raising  dykes  or  embankments  to 
keep  rivers  in  or  to  keep  the  sea  out.  The  main  feature 
of  all  these  works  is  that  they  confer  benefits  upon  the  entire 
community.  They  also  involve  an  exercise  of  the  right  of 
eminent  domain,  that  is,  the  right  of  a  government,  under 
certain  circumstances  and  on  equitable  conditions,  to  take 
private  property  for  public  use. 

Some  of  these  works  are  of  such  a  nature,  and  such  la 
the  benefit  they  yield  that  it  is  impracticable  to  derive 
any  income  from  the  capital  expended.  Hence  they  must 
be  provided  for  by  public  funds.  Othei's  of  them  come 
within  the  scope  of  private  enterprise,  and  under  wise 
management,  may  be  made  to  yield  a  fair  profit  on  the 
capital  invested,  by  charges  for  their  use.  Many  writers 
affirm  therefore,  that  a  government  should  never  assume 
any  of  these  works  which  individuals  are  willing  to  under- 
take. But  private  enterprise  can  do  nothing  with  them 
without  action  of  the  government  authorizing  the  works 
and  conferring  privileges  and  powers  for  their  construction 
and  management.  There  is  danger  that  these  powers  will 
be  abused  for  selfish  interests,  in  disregard  of  the  public 
good.  Some  of  them  also,  like  the  Pacific  railway,  are  of 
too  greab  magnitude  for  private  enterprise  unaided,  and  it 
may  be  wisest  and  best  that  the  government  should  con- 
trol those  works  to  which  it  must  contribute  aid.  Ilecent 
experience  with  some  of  our  great  railway  corporations 
gives  much  weight  and  importance  to  these  considerations 
and  complicates  the  question  as  to  what  should  and  what 


PUBLIC   IMPROVEMENTS.  143 

ehould  not  be  undertaken  directly  by  the  government. 
Without  entering  into  the  discussion  of  this  question  here, 
we  may  say  that,  in  the  light  of  political  economy,  it  is 
evident  that  the  interests  of  the  ivhole  public  should  always 
take  precedence  of  all  private  interests,  and  that  a  govern- 
ment should  never,  by  any  grant  or  charter,  alienate  its 
right  or  its  power  to  guard  and  serve  the  public  interests 
as  they  are  concerned  in  these  works. 

3.  Expenditures  for  advancing  Science  and  diffusing 
Intelligence  for  common  interests.  This  class  of  expendi- 
tures is  closely  allied  with  that  last  referred  to,  but  it 
deserves  a  distinct  notice.  It  embraces  exploring  expedi- 
tions to  remote  and  unknown  parts  of  the  earth,  expedi- 
tions to  localities  most  favorable  for  important  astronomi- 
cal observations,  geological  surveys,  coast  surveys,  meteor- 
ological observations,  entomological  investigation,  and  the 
whole  post-office  system  as  a  means  of  diffusing  intelligence 
and  promoting  social  intercommunication.  Some  of  these 
expenditures  do  not  contemplate  a  present  imperative  need, 
nor  an  immediate  pecuniary  advantage,  but  they  dp  all 
yield  broad,  general  benefits,  of  the  highest  importance 
even  in  their  economical  aspect,  which  justify  the  judi- 
cious application  of  the  public  funds  to  provide  for  them. 

In  a  thickly  populated  country  of  limited  extent,  a 
postal  system  may  be  made  self-sustaining  by  a  very  low 
charge  for  the  service  rendered,  and  might  be  maintained 
by  private  enterprise.  But  no  doubt,  it  is  even  then  safest 
and  surest  under  the  control  of  the  government.  In  a 
country  like  ours,  however,  so  broad,  and  in  many  parts  so 
thinly  inhabited,  it  must  be  maintained  by  the  government, 
and  the  common  interest  justifies  a  low  rate  of  postage, 
though  for  a  time,  it  may  make  considerable  drafts  on  the 
public  treasury.  The  time  is,  probably,  not  far  distant 
when  a  like  common  interest  in  the  use  of  the  magnetic 


144  CONSUMPTION. 

telegraph,  as  a  means  of  communication,  will  require  the 
government  to  connect  it  directly  with  its  postal  system. 

4.  Expenditures  to  promote  the  General  Education  of  the 
people.  This  is  a  proper  object  for  national  expenditure, 
because  the  prosperity  of  a  country  depends  very  much  on 
the  general  intelligence  of  its  population.  General  educa- 
tion causes  industry  to  be  more  intelligently  applied  and 
makes  it  more  effective.  It  brings  labor  and  capital  more 
nearly  upon  a  basis  of  equality,  as  they  meet  for  mutual 
contracts  and  cooperation,  and  guards  against  the  disturb- 
ing outbreaks  of  ignorant  and  unreasoning  masses.  It 
qualifies  all  to  discern  what  are  their  best  interests,  and 
wisely  and  firmly,  without  violence,  to  stand  for  those  in- 
terests in  the  sharp  competitions  of  industry  and  trade. 
It  is  for  every  man's  interest  that  he  have  intelligent  men 
to  associate  and  to  deal  with. 

A  system  of  public  education  must  provide  free  schools 
open  to  all  classes,  in  which  children  may  be  taught  to 
read  and  write  with  accuracy  their  vernacular  language, 
to  use  numbers  freely  and  correctly  in  their  various  com- 
binations as  involved  in  the  ordinary  transactions  of  busi- 
ness, and  to  master  the  elementary  facts  of  geography, 
history  and  science,  essential  as  a  beginning  of  that  gen- 
eral information  in  the  acquisition  and  use  of  which  the 
mind  should  be  growing  through  all  the  years  of  after  life. 
No  doubt  there  are  communities  in  which  the  full  benefit 
of  such  a  system  can  be  secured  only  by  making  attendance 
compulsory  ;  but  in  general,  a  prevalent  popular  sentiment, 
such  as  is  formed  by  the  presence  and  influence  of  good 
schools,  will  be  found  better  than  direct  legislation  to 
bring  the  children  of  all  classes  under  instruction. 

Many  of  our  American  states  are  provided  with  general 
scliool  funds  which  yield  an  income  devoted  to  sustain  a 
system  of  public  education.  These  are  rarely  sufficient  to 


EXPENDITURES    FOR   EDUCATION.  145 

provide  for  the  entire  expense  of  schools ;  nor  is  it  best 
they  should  be,  since  a  local  interest  in  each  school  is 
more  likely  to  be  sustained  when  the  people  themselves 
contribute  something  for  their  support.  For  the  distribu- 
tion of  these  general  funds,  a  rule  which  seems  wise  is 
commonly  adopted,  making  the  amount  of  appropriation 
to  each  district  depend  upon  the  amount  of  tax  levied  in 
the  district,  as  well  as  upon  the  number  of  scholars.  To 
make  the  system  complete,  it  seems  necessary,  that  every 
district  sufficiently  large  to  maintain  a  school,  should  be 
obliged  to  maintain  one,  and  that  for  this  purpose,  the 
necessary  funds  beyond  what  the  general  school-funds  may 
furnish  be  raised  by  the  authority  of  the  public  from  the 
district.  When,  however,  these  funds  have  been  raised, 
they  may  safely  be  left  in  the  power  of  each  district  itself, 
in  the  belief,  that  those  who  have  themselves  earned  and 
contributed  the  money,  will  be  more  likely  than  any  other 
persons  to  disburse  it  skillfully  arid  economically.  Besides 
this,  as  upon  such  a  system,  teachers  will  be  wanted  in 
large  numbers,  it  maybe  desirable  that  normal-schools  be 
established  for  the  special  purpose  of  educating  them. 
This  will  give  uniformity  to  the  system  of  instruction,  and 
enable  the  science  of  education,  throughout  a  whole  com- 
munity, the  more  easily  to  keep  pace  with  the  progress  of 
science  in  other  departments  of  knowledge. 

There  can  be  no  question,  that  the  safety  and  best 
good  of  society,  economical  as  well  as  moral,  require  the 
state  to  provide  for  the  gratuitous  education  of  all  classes 
in  the  rudiments  of  knowledge.  How  far  beyond  this,  the 
public  system  should  be  extended,  and  especially  whether 
the  state  should  set  up  and  maintain  by  general  taxation, 
higher  institutions  such  as  colleges  and  universities,  to 
make  a  scientific  and  professional  education  also  gratuitous, 
is  a  question  which  demands  the  thoughtful  consideration 
of  the  economist,  the  statesman  and  the  Christian.  We 
7 


146  CONSUMPTION. 

can  offer  here  only  a  few  thoughts  bearing  on  that  ques- 
tion. No  doubt,  it  is  for  the  advantage  of  the  whole  state, 
that  some  of  its  citizens  should  be  well  trained  to  become 
leaders  of  thought  and  influence  in  society.  It  is  clear  also 
that  the  actual  expense  of  a  thorough  liberal  education  is 
so  great  that  if,  by  charges  for  tuition,  raised  to  the  full 
measure  of  the  cost,  the  burden  of  giving  their  own  chil- 
dren its  advantages  were  thrown  entirely  upon  parents,  only 
the  children  of  the  rich  could  enjoy  the  privilege.  On 
the  other  hand,  it  is  evident  that  few  comparatively  can 
enjoy  the  direct  benefit  of  these  institutions  and  it  seems 
unjust  that  the  whole  community  should  be  heavily  taxed 
to  make  these  advantages  gratuitous  for  the  few.  Under 
the  control  of  the  state,  such  institutions  must  be  more  or 
less  involved  in  the  conflicts  of  political  parties,  in  a  way 
unfavorable  to  the  most  successful  prosecution  of  their 
work.  Under  such  control  also,  it  is  difficult,  not  to  say 
impossible,  to  adjust  the  treatment  of  moral  and  religious 
subjects,  which  cannot  be  excluded  from  a  course  of  liberal 
education,  so  as  to  satisfy  all.  Moreover,  it  is  healthful 
for  a  people  thafc  wide  scope  be  given  for  the  action  of 
private  beneficence  in  endowing  institutions  of  learning ; 
and  the  education  that  costs  the  young  man  and  his 
parents  and  friends  some  direct  sacrifice,  is  most  likely 
to  be  appreciated,  made  thorough  in  its  processes  and 
turned  to  good  service  in  its  practical  use.  Experience  in 
our  country  has  shown  that  institutions  so  established  and 
maintained,  do  send  forth  men  well  fitted  to  lead  and  mold 
public  opinion  and  to  make  the  learned  professions  strong 
and  influential  for  the  highest  welfare  of  society.  They 
deserve,  as  they  have  received,  the  fostering  care  of  the 
state. 

The  importance  of  this  work  of  higher  education,  as  a 
conservative  power  for  the  industrial,  social  and  moral 
well-being  of  a  people,  cannot  be  overestimated.  The 


EXPENDITURES   FOE   EDUCATION".  147 

government  needs  to  foster  and  sustain  it  by  every  legiti- 
mate means.  The  main  question  is  simply  whether  or  not 
the  state  shall  undertake  by  general  taxation  to  build  up  a 
public  university  to  be  conducted  under  its  own  control. 
This  question  demands  a  broad,  candid  and  disinterested 
discussion. 

5.  Expenditures  for  the  care  of  classes  afflicted  by  pecu- 
liar calamities   or  Deprivations.     Under  this  head,  are 
contemplated  chiefly  hospitals  for  the  insane,  institutions 
in  which  the  deaf  and  dumb,  the   blind  and  the  feeble- 
minded, may,  by  peculiar  processes  of  education,  be  fitted 
to   become  useful  and  happy  members  of  society.     Our 
common  sympathies  and  benevolence    dictate  that    such 
means  for  relief  of  the  unfortunate  should  be  provided. 
Evidently,  they  can  be  most  economically  provided  by  the 
state.     The  benefits  also  must  be  very  largely  gratuitous, 
because  such  calamities  come  in  the  largest  proportion  upon 
the  poor.     Lavish  expenditures,  in  this  exercise  of  public 
beneficence  are,   however,  to  be  deprecated.      Institutions 
may  be  set  up  and  carried  on  in  a  style  so  costly  as  need- 
lessly to  increase  the  burdens  of  taxation  and  to  be  a  dis- 
advantage to  their  inmates,  accustoming  them,  for  a  brief 
period,  to  luxuries  which  tend  to  make  them,  in  after-life, 
discontented  with  their  plain  homes.      A  wise  frugality 
needs  to  be  observed  even  in  the  exercise  of  charity,  both 
by  individuals  and  by  the  state,  that  means  may  be  exactly 
adapted  to  their  end. 

6.  Expenditures  for  the  Relief  of  Poverty.     To  relieve 
the  sick,  the  destitute,  and  the  helpless,  is  a  religious  duty, 
and  therefore  should,  like  every  other  religious  duty,  be  a 
voluntary  service.      Hence,  charity  in  a  moral  and  reli- 
gious community,  should  generally  be  dispensed  by  individ- 
uals from  their  own  resources,  or  from  the  resources  of 
voluntary  associations. 


148  CONSUMPTION". 

Nevertheless,  as  cases  frequently  occur  which  could  not 
with  sufficient  promptness,  be  relieved  by  the  aid  of  indi- 
viduals, or  in  which  the  burden  would  press  too  heavily 
on  the  most  charitable,  it  may  be  proper  that  some 
public  provision  should  be  made  for  the  relief  of  those 
whom  old  age,  or  infancy,  or  sickness,  or  sad  calamity  has 
deprived  of  the  power  of  providing  the  means  necessary 
for  sustenance. 

By  far  the  greater  number  of  persons  requiring  such 
aid,  are,  however,  capable  of  some  labor,  and  are  also  pos- 
sessed of  some  skill.  They  are  also  far  happier,  when  en- 
gaged in  suitable  labor,  than  when  idle.  It  is  therefore, 
the  dictate  of  benevolence,  as  well  as  of  economy,  to  pro- 
vide them  with  means  of  profitable  occupation.  This 
labor  and  skill,  if  judiciously  employed  upon  capital,  will 
commonly  defray  the  expenses  of  the  support  of  paupers. 
Hence,  the  best  method  of  relieving  the  poor,  is  to  provide 
some  establishment  furnished  with  sufficient  capital,  in 
which  all  the  poor  who  need  assistance  may  be  employed 
and  supported.  In  many  cases  in  New  England  and  New 
York,  farms  have  been  purchased  by  towns  or  by  counties 
for  this  purpose.  It  has  generally  been  found,  that 
the  only  expense  necessary  to  be  incurred,  is  the  pur- 
chase of  the  farm,  or  the  first  investment  of  the  capital. 
The  establishment  after  this,  under  judicious  management 
has  generally  paid  its  own  expenses  and,  in  some  cases,  it 
is  said,  has  even  yielded  a  revenue  to  the  public.  The  ex- 
penses of  pauperism,  if  they  be  defrayed  in  this  manner, 
must  of  necessity  be  very  moderate,  while  a  competent  and 
convenient  provision  may  be  made  for  every  individual 
who  actually  deserves  assistance. 

7.  Expenditure  for  the  Nation's  Defence.  The  first 
duty  of  a  government  is  to  maintain  its  own  life  and  give 
full  protection  to  all  its  subjects,  in  the  enjoyment  of  their 
rights.  If  justice  and  benevolence  universally  prevailed, 


EXPENDITURES   FOR   DEFENCE.  149 

this  would  be  an  easy  task.  But  the  world  is  yet  far  from 
witnessing  the  full  prevalence  of  these  principles.  Hence, 
every  nation  is  liable  to  be  assailed  by  enemies  from  with- 
out, and  to  be  convulsed  by  insurrection  and  rebellion 
within  its  own  borders.  Exigencies  will  thus  arise,  when 
nothing  but  military  force  will  save  a  nation's  life.  True 
economy  therefore,  dictates  that  provision  be  made  for 
such  exigencies  by  due  appropriations  for  armies,  navies 
and  the  munitions  of  war.  When  the  necessity  comes 
and  war  is  inevitable,  then  no  expense  is  unreasonable 
which  is  necessary  to  prosecute  it  with  the  utmost  vigor. 

Yet,  it  must  be  remembered  that  war  is  always  de- 
structive, terribly  destructive  of  both  wealth  and  men  who 
produce  wealth.  In  the  history  of  the  world,  thus  far, 
much  the  largest  part  of  national  consumption  in  all  coun- 
tries, has  been  for  this  purpose.  This  is  attested  by  the 
millions  upon  millions  of  public  debt  with  which  all 
nations  are  burdened,  the  greater  portion  of  which  were 
incurred  in  wars.  In  view  of  these  facts,  it  certainly  be- 
hooves all  statesmen,  all  patriots  and  all  philanthropists 
to  favor  to  the  utmost  that  conduct  in  the  intercourse  of 
nations  which  will  be  so  frank,  so  true,  so  just  as  to  arrest 
jealousies  and  disputes ;  and  to  further  all  measures 
which  may  lead  to  the  settlement  of  controversies  where 
they  arise,  by  arbitration  rather  than  by  arms.  The  varied 
industries,  the  expanding  commerce  and  the  improving 
moral  sentiments  of  the  nations,  on  the  one  hand,  and  the 
ever  increasing  expensiveness  of  wars  on  the  other,  present 
hopeful  signs  that  the  era  is  approaching  when  social  and 
moral  forces  will  be  more  effective  than  military  forces  to 
guard  the  life  of  nations  and  keep  the  peace  of  the  world. 
God  speed  the  good  day  ! 

With  reference  to  the  whole  range  of  public  consump- 
tion, sound  economy  dictates  two  plain  and  simple  rules. 


150  CONSUMPTION". 

1.  Tlie  Style  and   Scale   of   National    Expenditures 
should  be  such  as  to  command  the  respect  and  honorable 
pride  of  the  people  without  useless  display. 

2.  The  Methods  of  National  Expenditures  should  be 
such  as  to  hold  all  the  agents  of  government  to  a  direct  and 
particular  responsibility  and  to  ensure  the  utmost  fidelity 
in  the  discharge  of  all  trusts. 


CHAPTER  XII. 

THIRD   DIVISION.— DISTRIBUTION. 

The  Scope  of  this  Division. — We  have  seen  that 
in  or.ler  to  the  production  of  wealth,  labor  must  be  joined 
wr>h  capital  ;  also  that  various  kinds  of  labor  and  divers 
forms  of  capital  are  involved  ;  and  further,  that  in  every 
process  of  production,  there  must  be  a  consumption  of 
both  labor  and  capital,  out  of  which  new  forms  of  wealth 
appear  with  increased  value.  In  some  cases,  the  same 
person  both  owns  the  capital  and  performs  the  labor. 
More  commonly,  however,  those  who  labor,  work  with 
capital  which  belongs  to  others.  In  all  cases,  the  profits, 
that  is,  the  actual  increase  of  value,  can  be  properly 
estimated  only  after  due  allowance  is  made  for  capital 
consumed,  and  for  the  reward  of  both  laborers  and 
capitalists. 

Moreover,  the  general  productive  industry  of  a  people, 
in  its  wide  range,  includes,  as  we  saw,  many  kinds  of  labor, 
such  as  that  of  the  learned  professions,  which  are  indi- 
rectly, yet  really  concerned  in  production.  Evidently,  the 
compensation  of  all  such  labor  must  be  derived  from  the 
results  of  production,  and  must  be  adjusted  to  some  defined 
and  recognized  principles. 

It  is  obvious  also,  that  the  protection  of  good  govern- 
ment, giving  security  to  persons  and  property,  is  essential 
to  prosperous  industry,  and  that  the  means  for  the  support 
of  the  government  must  be  drawn  from  the  proceeds  of 
productive  industry.  This  item,  therefore,  must  be  in- 


152  DISTRIBUTION. 

eluded  with  those  just  named  in  the  estimate  of  expenses 
of  production. 

Then  beyond  these,  is  the  surplus  of  wealth  produced 
over  all  consumed,  that  is,  the  profits,  the  anticipation  of 
which  is  the  chief  stimulus  to  industry  and  enterprise. 
The  question,  to  whom  and  in  what  proportion  shall  these 
profits  be  assigned,  is  one  of  prime  importance,  for  the  set- 
tlement of  which  our  science  should  define  some  fixed 
principles.  All  of  these  matters  are  properly  embraced 
within  the  range  of  this  third  division  of  our  subject, 
which  may  be  defined  thus  : 

Distribution  is  that  department  of  Political  Economy 
which  determines  the  principles  on  which  the  proceeds  of 
industry  are  divided  among  the  parties  concerned  in  their 
production. 

The  Parties  to  be  Recognized. — In  any  branch 
of  industry  and  in  the  general  productive  industry  of  a 
nation,  three  parties  are  to  be  considered.  First,  the 
Laborers  of  all  grades  whose  energies,  physical  and  mental, 
are  directly  or  indirectly  engaged.  Second,  the  Owners 
of  the  Capital,  which  is  the  fruit  of  past  labor,  saved  and 
now  combined  with  present  labor  for  a  joint  result. 
Third,  the  Government  which  draws  on  the  proceeds  of  in- 
dustry generally,  for  its  own  maintenance,  with  a  view, 
alike  to  the  security  of  the  rights  of  all  in  the  pro- 
cesses of  production,  and  to  the  highest  happiness  of 
all  in  the  enjoyment  of  its  fruits.  In  the  cases  before 
referred  to,  where  the  laborer  combines  in  himself  muscu- 
lar power,  acquired  skill,  inventive  genius  and  managing 
capacity,  and  works  on  his  own  capital,  the  entire  proceeds 
of  his  labor  must  go  to  him,  subject  only  to  the  claims  of 
the  government.  But  even  then,  it  is  easy  and  it  is  well, 
agreeably  to  the  principles  of  distribution,  to  set  down  one 
portion  of  the  proceeds  as  compensation  for  the  use  of 


SUBDIVISIONS.  153 

capital,  another  portion  as  the  reward  of  simple  labor,  and 
yet  another  as  a  premium  for  the  wise  management  of  the 
business. 

This  department  naturally  resolves  itself  into  four  sub- 
divisions which  will  be  treated  in  their  order. 

1.  The  Remuneration  of  Labor. 

2.  The  Remuneration  of  Capital. 

3.  The  Distribution  of  Profits. 

4.  The  Revenues  of  the  Government. 


CHAPTER  XIII. 

THE  REMUNERATION  OF  LABOR. 

Terms  used. — The  compensation  of  labor  is  repre- 
sented by  several  terms  which  correspond  to  different 
kinds  of  labor.  The  term  most  common  and  applicable 
to  the  greatest  number  of  persons  is  Wages.  It  means  the 
stipulated  reward  for  services  rendered,  rated  either  by  the 
time  occupied,  as  when  men  are  paid  by  the  day  or  month, 
or  by  the  work  accomplished,  as  when  men  are  paid  by  the 
piece, — so  much  for  each  article  made.  This  term  is  ap- 
plied especially  and  chiefly  to  manual  labor  of  all  grades, 
including  simple  labor  in  which  little  more  than  muscular 
strength  is  required,  and  skilled  labor  which  involves  intel- 
ligence and  training.  It  presupposes  the  relation  of 
employers  and  employes,  bound  by  a  mutual  stipulation 
or  contract  which  may  be  varied  or  terminated  on  short 
notice. 

The  term  Salary  expresses  a  fixed  sum  of  money  to  be 
reckoned  usually  by  the  year,  for  services  which  ordi- 
narily involve  some  brain-work  and  responsible  trust. 
Thus  in  a  large  manufactory,  while  the  mass  of  laborers 
receive  wages,  the  book-keeper,  the  cashier,  the  superin- 
tendent and  the  general  manager,  who  may  be  the  presi- 
dent of  the  stock-company,  have  salaries.  The  compensa- 
tion of  clergymen,  teachers  and  civil  officers  is  commonly 
adjusted  in  this  form.  Generally,  the  term  implies  an 
engagement  of  some  permanence,  and  a  grade  of  service 
requiring  special  qualifications  and  previous  education. 

In  some  kinds  of  business,  agents  are  employed  whose 


REMUNERATION   OF   LABOR.  155 

labors  are  compensated  by  Commissions,  that  is  a  certain 
rate  per  cent  of  the  value  involved  in  each  transaction. 
Thus  brokers,  or  persons  engaged  in  the  purchase  of  stocks, 
real  estate,  etc.,  insurance  agents,  collectors  of  debts,  trav- 
eling clerks  who  solicit  orders  of  goods  for  mercantile  or 
manufacturing  establishments,  are  compensated  for  their 
labor  by  stipulated  commissions.  In  this  case,  the  em- 
ployer or  the  party  who  engages  the  service,  makes  him- 
self responsible  only  for  what  is  actually  done,  and  the 
agent's  reward  will  depend  very  much  on  the  enterprise, 
tact  and  fidelity  with  which  he  prosecutes  his  work. 

Lawyers,  physicians,  and  certain  civil  officers  are  re- 
munerated by  Fees.  This  form  of  compensation  originated 
probably,  in  the  gratuity  formerly  offered  for  a  service 
rendered,  by  the  party  benefited.  Hence  there  has  always 
been  more  or  less  of  indefiniteness  connected  with  this 
mode  of  remuneration.  It  is  adjusted  for  each  particular 
service,  at  rates  determined  in  part  by  usage  and  in  part 
by  the  arbitrary  demand  of  the  party  rendering  the  service, 
or  by  the  good-will  of  the  party  served. 

From  the  mere  statement  of  these  distinctions,  it  is 
evident  that  the  questions  respecting  wages  involve  the 
most  difficult  problems  of  distribution,  and  must  therefore 
command  our  first  and  chief  attention.  Mr.  Francis  A. 
Walker,  after  limiting  the  wages-class  to  "persons  who 
are  employed  in  production  with  a  view  to  the  profit  of 
their  employers,  and  are  paid  at  stipulated  rates,"  esti- 
mates that  "  of  English-speaking  people,  three-fourths 
probably,  two-thirds  certainly,  subsist  on  wages."  They 
compose  the  class  who  without  resources  and  defences  of 
their  own,  stand  exposed  to  the  operation  of  laws  which 
are,  in  their  very  nature,  fixed,  and  which  work  with  a 
kind  of  relentless  severity. 

Before  attempting  to  state  the  laws  which  govern  the 
rate  of  wages,  we  need  to  notice  some  important  distinc- 


156  DISTRIBUTION. 

tions,  the  neglect  of  which  often  causes  error  and  confu- 
sion in  the  discussion  of  this  subject. 

Nominal  and  Real  Wages. — The  rates  of  wages 
are  usually  stated  in  terms  of  money.  This  money-rate  is 
what  is  meant  by  nominal  wages.  But,  as  actual  remun- 
eration of  the  hired  laborer,  wages  are  measured  by  the 
necessaries,  comforts  and  luxuries  of  life  which  they  will 
command.  Real  wages  are  so  estimated.  It  is  of  the 
highest  importance  to  observe  this  distinction,  in  compar- 
ing the  rates  of  wages  in  different  countries,  or  at  different 
periods.  The  money  which  a  skilled  mechanic  in  Eng- 
land receives  for  a  day's  work  is  much  less  than  that  re- 
ceived by  one  of  the  same  class  in  the  United  States.  But 
actual  investigation  shows  that  the  English  workman's 
smaller  pay  will  bring  him  the  larger  quota  of  those  things 
which  minister  to  the  enjoyment  of  life.  In  our  country, 
the  wages  of  a  common  day-laborer  in  1843,  were  one  dol- 
lar per  day  ;  in  1865,  the  nominal  rate  was  doubled.  Yet 
the  low  rate  of  1843  would  secure  for  him  full  one-third 
more  of  articles  necessary  for  his  comfort,  than  the  double 
rate  of  1865. 

Several  causes  operate  to  produce  this  difference. 

1 .  The  most  influential  of  all  is  the  Fluctuations  in  the 
purchasing  power  of  money,  under  sudden  expansions  and 
contractions  of  the  currency.  An  increased  production  of 
gold  and  silver,  at  times,  has  added  suddenly  to  the  money 
of  the  world.  In  former  times,  sovereigns  used  to  debase 
the  coin  of  their  realms,  in  order,  for  their  own  advantage, 
to  make  out  of  the  same  weight  of  gold  and  silver,  twice  as 
much  money.  And  in  modern  times,  the  invention  of 
paper  substitutes  for  coin,  especially  when  issued  as  incon- 
vertible government-notes,  has  done  more  than  all  else  to 
produce  sudden  expansions  of  that  which  passes  as  money. 


NOMINAL   AND    REAL   WAGES.  15? 

Any  such  increase  of  current  money  soon  shows  itself  in 
a  diminished  purchasing  power,  that  is  in  enhanced  prices 
for  all  commodities.  The  worst  mischief  of  such  fluctua- 
tions falls  upon  those  whose  living  depends  on  wages. 

It  may  be  said  that  with  the  advancing  price  of  com- 
modities, wages  also  rise.  This  is  true  to  some  extent,  but 
ordinarily,  wages  do  not  rise  in  full  proportion  to  the  ad- 
vance of  prices  generally.  The  change  in  wages  comes 
lagging  slowly  after  the  other  changes  ;  it  stops  considera- 
bly short  of  the  full  expansion  in  other  matters  ;  and  the 
reaction  which  brings  a  decline,  is  apt  to  affect  wages 
sooner  than  the  prices  of  merchandise.  The  reason  for 
this  difference  is  well  stated  by  Mr.  Amasa  Walker  thus  : 

"For  nearly  all  products,  there  is  both  an  actual  and  specu- 
lative, or  a  present  and  prospective  demand  ;  for  labor  there  is 
only  an  actual  present  demand.  When  business  begins  to  be  par- 
ticularly prosperous,  there  is  a  general  demand  for  all  kinds  of 
merchandise,  and  prices  gradually  begin  to  improve.  This,  at 
once,  occasions  a  speculative  demand  ;  for  to  buy  will  be  to  realize 
an  advance  ;  the  larger  the  purchases,  the  greater  the  amount  of 
the  profit.  Every  operation  pays.  The  rise  continues  until  every 
article  bought  and  sold  as  merchandise  goes  up  to  the  highest 
point.  But  no  one  speculates  in  wages.  No  one  can,  if  he  would, 
buy  a  hundred  thousand  dollars  worth  of  labor  and  hold  it  for  an 
advance,  as  he  can  of  flour,  sugar  or  tea.  On  the  other  hand, 
when  the  tide  turns,  the  fall  of  merchandise  is  broken  by  the  dis- 
position and  ability  of  the  owner  to  hold  his  goods  and,  as  far  as 
possible  prevent  loss  ;  but  the  laborer  cannot  do  this — he  must 
sell  his  services  at  once  for  the  most  they  will  bring." 

These  views  are  somewhat  qualified  by  the  fact  that 
speculation,  for  the  time,  stimulates  production  so  as  to 
increase  the  demand  and  raise  the  wages  for  labor.  This, 
however,  is  an  unnatural  stimulus,  which  leads  inevitably 
to  over-production.  In  the  day  of  highest  activity  and 
apparent  prosperity,  laborers  fail  to  get  their  full  share  of 
the  advantage,  and  when  the  reaction  comes,  there  is  no 


158  IHSTRIBUTION. 

alternative  but  that  many  forms  of  production  must  be 
curtailed  or  wholly  suspended,  and  multitudes  of  laborers 
must  be  thrown  out  of  employment  altogether.  Thus,  the 
financial  revulsion  of  1873,  which  was  a  necessary  conse- 
quence of  the  speculation  and  over-production  incited  by 
the  inflated  currency  of  the  ten  years  previous,  brought 
its  saddest  results  on  the  class  who  depend  on  wages,  cut 
ting  off  the  means  of  living  with  many,  and  perpetuating 
the  distress  through  a  series  of  years  following. 

2.  Another  cause  producing  a  difference  between  nomi- 
nal and  real  wages  is  found  in  the  Forms  of  Payment. 
While  wages  are  generally  reckoned  in  money,  they  are 
not  always  paid  in  money.     Almost  everywhere,  unmar- 
ried agricultural  laborers  have  their  board  counted  in  as  a 
part  of  their  wages.    In  some  countries  farm  hands  are  paid 
almost  entirely  in  kind,  that  is  in  a  portion  of  the  pro- 
ducts, in  the  rent  of  a  cottage,  the  use  of  a  patch  of  ground 
for  themselves,  the  privilege  of  keeping  a  cow  or  a  pig  and 
certain  perquisites  such  as  the  hauling  of  peat  or  coal. 
With  some  manufacturing  establishments,  a  store  is  con- 
nected and  a  considerable  part  of  the  wages  of  employes  is 
paid  by  orders  for  goods,  whose  price  and  quality  may  be 
such  as  materially  to  reduce  the  wages  when  measured  by 
necessaries  and  comforts  actually  obtained.     In  our  coun- 
try, this  "truck-system"  is  much  less  common  now  than 
it  was  fifty  years  ago.     In  France,  the  artisan  classes  have 
always  resented  it,  and  in  Germany,  the  Industrial  Code 
of  1869  forbids  this  form  of  payment.     It  is  to  be  hoped 
the  day  will  soon  come  when  it  will  be  everywhere  aban- 
doned. 

3.  The  greater  or  less  Regularity  of  employment  also 
creates  a  difference  between  nominal  and  real  wages.    This 
is  affected  by  the  nature  of  the  occupation,  as  in  agricul- 


NOMINAL   AND   REAL   WAGES.  159 

ture,  brick-making,  house-building,  the  fisheries  and  the 
like.  In  a  climate  like  ours,  some  parts  of  labor  in  these 
callings,  are  precluded  at  certain  seasons  and  are  crowded 
at  others.  In  some  Catholic  countries,  the  observance  of 
numerous  holidays  causes  considerable  irregularity  of  em- 
ployment. The  concentration  of  labor  in  large  establish- 
ments for  production  on  a  large  scale,  with  the  methods 
of  modern  trade,  almost  inevitably  causes  alternations  of 
periods  of  great  activity  with  periods  of  dullness  and  de- 
pression. In  this  connection  must  be  noticed  also,  the 
interruption  to  regular  industry  caused  by  strikes.  In 
illustration  of  these  irregularities  and  of  their  effect  on 
wages,  we  present  the  following  facts  stated  by  Mr.  Bax- 
ter, an  English  writer.  Speaking  of  the  building-trades, 
he  says  : 

"These  trades  form  a  whole  and  include  carpenters,  brick- 
layers, masons,  plasterers,  painters  and  plumbers,  and  number  in 
England  and  Wales  about  three  hundred  and  eighty-seven  thou- 
sand men  above  twenty  years  of  age.  It  is  only  the  best  men, 
working  with  the  best  masters,  that  are  always  sure  of  full  time. 
These  trades  work  on  the  hour-system,  introduced  at  the  instance 
of  the  men  themselves,  but  a  system  of  great  precariousness  of 
employment.  The  large  masters  give  regular  wages  to  their  good 
workmen,  but  the  smaller  masters,  especially  at  the  east  end  of 
London,  engage  a  large  proportion  of  their  hands  for  the  job, 
and  then  at  once  pay  them  off.  All  masters,  when  work  grows 
slack,  immediately  discharge  the  inferior  hands  and  the  unsteady 
men, — of  whom  there  are  but  too  many  among  clever  workmen, — 
and  do  not  take  them  on  again  until  work  revives.  In  bad  times, 
there  are  always  large  numbers  out  of  employment.  In  prosper- 
ity, much  time  is  lost  by  keeping  ' '  Saint  Monday  "  and  by  occa- 
sional strikes." 

All  this  clearly  shows  that  the  real  remuneration  of  the 
laborer  must  be  estimated,  not  by  the  wages  of  one  day  of 
the  week  or  one  month  of  the  year,  but  by  that  rate,  as 
qualified  by  the  regularity  or  irregularity  of  his  employ- 
ment. In  reckoning  annual  earnings,  it  is  common  to 


160  DISTRIBUTION. 

count  three  hundred  working  days  to  the  year.  For  a 
majority  of  occupations,  however,  this  is  probably  too  high 
an  estimate. 

4.  In  determining  the  difference  between  nominal  and 
real  wages,  regard  must  also  be  had  to  the  Duration  of  the 
potver  to  labor,  that  is  to  the  number  of  years  during  which 
the  man  can  expect  to  have  strength  and  vigor  to  earn 
wages.  Vital  statistics  indicate  that  this  period  varies 
considerably  with  men  of  different  nationalities, — in  differ- 
ent climates, — and  in  different  occupations.  To  know  the 
real  compensation  of  labor,  we  must  estimate  the  wages  of 
a  lifetime.  Where  the  conditions  of  labor  involve  early 
mortality  or  disability,  as  is  the  case  with  almost  all  work 
in  mines,  the  life's  earnings  are  proportionately  reduced. 
The  rate  of  nominal  wages  is  generally  somewhat  higher 
on  account  of  such  special  exposure,  but  seldom  is  the  in- 
crease at  all  commensurate  with  the  risks  involved. 

The  extensive  use  of  labor-saving  machinery  introduced 
within  the  last  fifty  or  sixty  years,  has  no  doubt  tended  to 
depress  the  nominal  wages  of  labor.  But  the  same  cause 
has  very  greatly  multiplied  and  cheapened  the  necessaries 
and  comforts  of  life  ;  so  that  real  wages  now  reach  a 
higher  measure  than  formerly.  The  laborer  of  to-day 
enjoys  a  hundred  comforts  which  either  were  not  known  a, 
half-century  ago,  or  were  then  quite  beyond  the  reach  of 
persons  of  his  class.  He  may  well  congratulate  himself  on 
his  improved  condition.  At  the  same  time,  however,  the 
fact  of  his  having  enjoyed  these  things  so  freely,  makes 
them  seem  necessities  and  aggravates  the  hardship  of 
being,  in  any  degree,  deprived  of  them. 

Nominal  and  Real  Cost  of  Labor. — In  presenting 
the  previous  distinction,  wages  were  considered  from  the 


NOMINAL   AND   REAL  COST   OF   LABOR.  161 

laborer's  point  of  view.  The  question  then  was,  what  are 
the  wages  at  a  given  rate,  worth  to  him  who  earns  them  ? 
We  need  to  look  at  the  same  thing  also  from  the  employer's 
point  of  view.  Now  the  question  is  what  is  the  labor  per- 
formed worth  to  him  who  pays  the  stipulated  wages  ?  We 
shall  see  that  in  this  case,  as  in  the  other,  the  rate  of 
wages,  by  itself,  is  not  a  certain  exponent  of  real  value. 
Mr.  Brassey,  drawing  his  conclusions  from  the  actual  expe- 
riences of  his  father  in  conducting  vast  industrial  opera- 
tions, especially  the  building  of  railways  in  many  lands, 
maintains  unhesitatingly  "  that  daily  wages  are  no  criterion 
of  the  actual  cost  of  executing  works  or  of  carrying  out 
manufacturing  operations.  On  the  contrary,  experience 
teaches  that  there  is  a  most  remarkable  tendency  to  equality 
in  the  actual  cost  of  work  throughout  the  world." 

The  fact  is  sim]  ly  that  labor,  as  an  element  of  cost  in 
production,  must  be  estimated  not  by  the  time  occupied, 
nor  by  the  rate  of  wages  paid,  but  by  the  efficiency  of  the 
labor  itself.  With  respect  to  this  element  of  efficiency, 
men  differ  very  greatly.  Mr.  Brassey  states  many  facts 
illustrating  this  difference.  We  give  two  or  three  of  them  : 

"On  one  side  of  a  building,  a  London  bricklayer  was  employed 
at  five  shillings  and  sixpence  a  day,  and  on  the  other,  two  country 
bricklayers  at  three  shillings  and  sixpence  a  day.  It  was  found 
by  measuring  the  amount  of  work  performed,  without  the  knowl- 
edge of  the  men  employed,  that  the  one  London  bricklayer  laid, 
without  undue  exertion,  more  bricks  in  a  day,  than  his  two  less 
skillful  country  laborers."  "On  the  Grand  Trunk  Railway  (of 
Canada),  a  number  of  French  Canadian  laborers  were  employed. 
Their  wages  were  three  shillings  and  sixpence  a  day,  while  the 
Englishmen  received  from  five  to  six  shillings  a  day,  but  it  was 
found  that  the  English  did  the  greater  amount  of  work  for  the 
money."  ''By  a  very  careful  inquiry,  at  a  large  iron  establish- 
ment in  France,  it  was  ascertained  that  forty-two  men  were  there 
employed  to  carry  out  the  same  amount  of  work  which  twenty- 
five  men  were  able  to  do  at  the  Clarence  factory  on  the  Tees/' 


162  DISTRIBUTION. 

There  are  many  other  like  facts  that  show  clearly  that 
the  different  wages  paid  in  different  countries  for  a  day's 
labor,  are  no  trustworthy  index  of  the  real  cost  of  labor. 
Often  it  is  the  best  economy  to  employ  men  at  the  highest 
wages,  because  from  superior  skill  or  greater  energy,  they 
will  achieve  most  for  the  money.  The  difference  is  quite 
generally  overlooked,  when,  in  discussing  the  advantages 
of  a  protective  tariff,  a  comparison  is  instituted  of  the  rates 
of  wages  in  different  countries.  It  is  often  wholly  disre- 
garded in  the  demands  which  laborers  endeavor  to  enforce 
by  strikes.  It  sometimes  happens  that,  even  where  there 
is  a  great  demand  for  labor,  many  persons  are  unable  to 
obtain  employment,  because  the  demand  is  not  for  certain 
hours  of  nominal  work,  but  for  labor  that  is  intelligent, 
trained,  efficient.  As  Mr.  F.  A.  Walker  says,  "  It  must 
be  held  constantly  in  mind  that  the  value  of  the  laborer's 
services  to  the  employer  is  the  net  result  of  two  elements,  one 
positive,  one  negative,  namely,  Work  and  Waste."  The  lat- 
ter term  includes  breakage,  the  wear  and  tear  of  imple- 
ments and  machinery,  the  destruction  or  impairment  of 
materials,  and  the  cost  of  supervision  and  oversight.  The 
more  delicate  the  machinery  and  the  more  costly  the  ma- 
terials, the  greater  is  the  liability  to  waste  by  unskilled 
hands. 

The  Various  Causes  to  which  these  differences  in  in- 
dustrial efficiency  may  be  referred  are  grouped  by  Mr. 
Walker  under  six  heads.  In  stating  them,  we  adopt  his 
terms  and  follow  his  order  with  very  brief  expansion. 

1.  Peculiarities  of  stock  and  breeding.  Men  of  differ- 
ent races  are  found  to  differ  greatly  in  physical  structure, 
in  height,  weight,  muscular  strength,  nervous  force  and 
spirit.  The  development  theory  of  modern  science,  no 
doubt  properly,  refers  this  difference  to  certain  physical 
causes,  such  as  local  climate,  customary  food  and  habits  of 


INDUSTRIAL    EFFICIENCY.  1C3 

life,  continued  through  many  generations.  Certain  social 
and  industrial  causes  are  also  to  be  recognized.  The 
standard  of  height  in  the  French  army  has  been  reduced 
during  the  eighty  years,  since  1793,  from  five  feet  four 
inches  to  five  feet  one  and  one-half  inches.  This  is  ac- 
counted for  by  the  fact  that  for  more  than  two  generations, 
the  strong,  healthy,  brave  men  of  the  nation  have  been 
drawn  off  to  the  wars  and  used  up,  leaving  the  feebler 
males  at  home  to  propagate  the  stock.  The  employment 
of  women  and  children  of  tender  age  at  hard  labor  and 
under  great  exposure,  in  mines  and  factories,  must  after  a 
generation  or  two,  depreciate  the  stock.  Peculiar  charac- 
teristics thus  formed  become  hereditary,  and  are  perpet- 
uated in  individuals  whose  circumstances  and  habits  are 
altogether  changed. 

2.  The  Meagreness  or  liberality  of  Diet.     Food  is  to  the 
human  frame  what  fuel  is  to  the  steam-engine.     "  What 
the  employer  will  get  out  of  the  workman  will  depend 
very  much  on  what  he  first  gets  into  him."     The  case 
demands  only  food,  in  quality  nourishing,  and  in  quantity 
sufficient  to  keep  the  man  in  the  best  working  condition. 
Luxuries  and  abundance  beyond  this,  mar  digestion  and 
diminish  physical  power.     This  matter  is  carefully  studied 
in  the  treatment  of  our  working  animals  ;  why  should  it 
not  be  also  regarded  with  respect  to  our  working  men  ?    In 
this  connection,  the  matter  of  clothing  is  an  important 
consideration  ;  for  clothing  and  food  help  each  other  in 
maintaining  the  necessary  warmth  of  the  body.     A  sheet 
iron  jacket  is  put  around   a  steam-boiler  to  prevent  the 
waste  of  heat ;  is  it  any  less  a  matter  of  economy  that  a 
woolen  jacket  be  put  about  the  body  of  the  laborer  for  the 
same  purpose  ? 

3.  Halits  voluntary  or  involuntary  respecting  cleanliness 
of  person  and  purify  of  air  and  water.     Whatever  depresses 


164  •       DISTRIBUTION". 

the  vitality  of  a  man  must  diminish  his  efficiency  for  labor. 
What  can  more  effectually  impair  the  quality  of  the  blood 
and  depress  the  nervous  force  than  to  live  as  millions  of 
laborers  do,  crowded  with  their  families  in  narrow,  filthy, 
unwholesome  tenements,  where  the  bright  sunlight  is  ex- 
cluded and  the  water  they  drink  is  contaminated  with 
sewage  matter,  and  the  air  they  breathe  is  charged  with 
noxious  poisons  ?  Sad  and  sickening  are  the  reports  of 
parliamentary  investigations  in  England  on  this  subject. 
We  congratulate  ourselves  that,  in  our  country,  working- 
men,  especially  those  connected  with  our  large  manufac- 
tories, are  better  provided  for.  Yet  the  evil  referred  to  is 
growing  upon  us,  particularly  as  respects  laborers  of  the  low- 
est grades  in  our  great  cities.  Philanthropy  and  economy 
alike  should  prompt  the  use  of  all  proper  means  to  guard 
against  this  evil.  Employers  may  do  something  to  secure 
decent  homes  for  their  workmen  as  well  as  to  make  wages 
just.  But  as  shiftlessness  and  intemperance  are  prime 
causes  of  the  degradation  of  labor,  so  the  chief  remedy 
and  safeguard  must  come  from  laborers  themselves  culti- 
vating self-respect  and  will-power  for  self-restraint. 

4.  The  general  Intelligence  of  a  laborer  goes  far  to 
determine  the  measure  of  his  efficiency.  A  man  who  has 
learned  to  read  and  write,  has  thereby  improved  his  ca- 
pacity to  learn  a  trade  or  any  particular  form  of  work. 
Men  intelligent  enough  to  go  beyond  the  mere  mechanical 
routine  which  occupies  their  day,  so  as  to  understand  the 
object  to  be  attained  and  the  reason  for  every  step  of  the 
process,  need  less  superintendence  than  the  dull  plodders 
who  never  think  for  themselves.  Intelligence  in  the 
laborers  may  also  save  much  waste  of  materials.  This  is 
an  important  consideration,  especially  in  those  branches  of 
mechanical  industry  in  which  the  outlay  for  materials  far 
exceeds  the  amount  paid  for  wages.  Many,  through  sheer 


INDUSTRIAL   EFFICIENCY.  165 

ignorance,  are  utterly  incompetent  to  use  delicate  and 
intricate  machinery,  which  properly  managed  greatly 
enhances  the  profit  of  production.  Intelligent  minds, 
while  busy  with  such  machinery,  have  their  invention 
quickened  to  devise  new  improvements.  All  these  consid- 
erations clearly  show  that  intelligent  workmen  employed  at 
high  wages  diminish  instead  of  increasing  the  real  cost  of 
labor,  measured  by  the  results  produced. 

5.  Technical  education  and  industrial  environment  add 
much  to  the  efficiency  of  labor.     The  reference  here  is  in 
part  to  thorough  apprenticeship,  but  more  to  the  inherited 
instinct  and  the  unconscious  tuition  acquired  by  contact 
and  familiarity  with  well  organized  systems  of  industry, 
vigorously  maintained.     "In  some  communities,  a  child  is 
brought  into  the  world  half  an  artisan."     In  association 
with  good  workmen  and  their  operations,  a  boy  grows  into 
habits  of  accurate  observation  and  of  manual  dexterity, 
and  learns  the  best  part  of  his  trade  before  lie  begins  his 
regular  apprenticeship.     Then,  he  falls  naturally  into  his 
place  in  the  organized  routine  of  daily  labor,  and  quickly 
acquires  expertness,  despatch  and  endurance.     Every  well 
organized  and  administered  manufactory  is  thus  a  school, 
an  educational  institution  for  training  all  engaged  and  all 
who  come  in   contact  with  it,  to  habits  of  subordination, 
regularity  and  co-operation,  the  prime  elements   of   effi- 
ciency in  labor. 

6.  Cheerfulness  and  Hopefulness  in  lal)or.  growing  out 
of  self-respect  and  social  ambition,  and  the  laborer's  per- 
sonal interest  in  the  result  of  his  work.     For  the  lack  of 
these  elements,  slave  labor  is  always  inefficient  and  costly 
labor.     No  pressure   of  a  master's  authority,  no  driving 
under  the  lash  can  bring  out  such  results  of  labor  as  come 
from    the    springs    of     cheerfulness     and    hope    in    the 


166  DISTRIBUTION. 

breast  of  the  worker  who  respects  himself  as  a  free  man, 
and  whose  personal  interest  in  the  results  of  his  toil  gives 
wide  scope  to  a  noble  ambition  to  make  the  most  of  him- 
self. The  wages  of  free  laborers  may  be  so  low  as  to  reduce 
them  almost  to  the  level  of  slaves.  But  this  always  involves 
in  the  long  run,  a  ruinous  reduction  also  of  the  profits  of 
production.  It  is  for  the  interest  of  the  employer  no  less 
than  for  that  of  the  laborer,  that  wages  should  be  such  as 
to  promote  cheerfulness  and  inspire  hopefulness;  giving 
him  who  depends  on  them  a  chance,  by  careful  thrift  and 
determined  energy,  to  better  his  condition  as  the  years  of 
his  life  run  on. 

The  Leading  Considerations  which  determine 
the  rate  of  Wages. — According  to  our  definition,  wages 
imply  always  a  contract,  a  stipulation  between  two  parties 
— a  promised  reward  for  promised  services.  The  two  par- 
ties come  together  for  their  mutual  advantage,  yet,  in 
making  the  contract,  each  looks  at  his  separate  interest. 
The  wages  agreed  on  must  have  some  regard  to  each  of 
these  separate  interests.  Neither  will  be  the  absolute  and 
all  controlling  consideration  to  determine  the  result. 
Other  considerations  may  have  more  weight  than  either  or 
both,  but  each  of  these  will  have  some  weight  and  claim 
some  regard.  Looking  at  the  laborer's  interest, 

1.  The  first  thing  to  be  considered  is  the  Cost  of  Liv- 
ing— what  is  necessary  for  the  support  of  the  laborer, 
according  to  the  standard  of  his  class.  Obviously,  the 
individual  laborer  must  have  something  to  live  on  which 
will  keep  him  in  bodily  health  and  vigor,  fit  for  work. 
But  this  is  not  all.  Man  is  short-lived.  The  species  is 
kept  in  existence  by  succession.  Children  must  be  reared. 
To  keep  the  number  of  laborers  the  same  in  any  country, 
wages  must  be  sufficient  to  provide  food  and  clothing  for 
man  and  wife  and  at  least  two  children,  until  they  are 


NECESSARY    WAGES.  167 

able  to  support  themselves.  Something  further  must  be 
added  to  provide  for  the  laborer  in  his  old  age,  when  he  is 
too  feeble  to  work.  More  than  all  this  is  needed,  for 
nature  has  ordained  that  the  human  species  shall  increase 
at  a  rate  more  rapid  than  that  of  two  children  to  each 
married  pair.  Hence,  in  the  settlement  of  wages,  regard 
must  be  had  to  the  rearing  of  such  a  number  of  children 
as  ordinarily,  in  the  course  of  nature  make  up  one  family. 
This  consideration  alone  would  determine  what  some 
writers  call  Necessary  Wages.  David  Ricardo  writing  in 
1817,  propounded  the  theory,  which  was  for  many  years 
quite  generally  accepted,  that  "  the  natural  price  of  labor 
depends  on  the  price  of  the  food,  necessaries  and  conve- 
niences required  for  the  support  of  the  laborer,  so  that  with 
a  rise  in  the  price  of  food  and  necessaries,  the  price  of 
labor  will  rise  ;  with  a  fall  in  their  price,  the  natural  price 
of  labor  will  fall."  There  is  a  measure  of  truth  in  this 
view.  This  is  a  consideration  which  must  affect  wages. 
But  this  is  not,  as  Eicardo's  theory  represents,  the  domi- 
nant factor  in  settling  the  contract.  It  may  be  uppermost 
in  the  mind  of  the  laborer,  as  he  comes  to  the  negotiation. 
He  will  naturally  urge  his  claim  for  a  compensation  which 
will  not  merely  keep  him  and  his  family  alive,  but  which 
will  enable  him  to  multiply  comforts  and  improve  their 
condition.  The  main  force  of  this  consideration  is  how- 
ever, to  define  a  limit  below  which  wages  cannot  be  set,  to 
continue  long,  without  producing  misery,  a  fearful  mor- 
tality of  children,  and  a  sad  waste  of  the  very  nerves  and 
sinews  of  effective  industry.  Nevertheless,  that  which  is 
all  in  all  to  the  laborer,  lias  little  place  in  the  thoughts  of 
the  employer.  Looking  now  to  his  interest, 

2.  The  second  thing  to  be  considered  is  the  Value  of  the 
Products — what  returns  will  be  given  for  the  capital  which 
engages  labor  and  for  the  abilities,  time  and  responsibility 


168  DISTRIBUTION. 

involved  in  managing  the  business.  Only  the  hope  of 
such  reward  draws  capital,  the  fruit  of  past  labor,  into  union 
with  present  labor.  If  that  hope  is  cut  off,  capital  is 
withdrawn,  wages  cease  and  the  industry  is  suspended.  A 
person  who  has  wealth  embarks  a  portion  of  that  wealth, 
as  capital,  in  some  enterprise  of  production,  not  because  he 
desires  to  keep  it  employed,  but  because  he  desii'es  to  in- 
crease his  store  by  the  profits  of  production.  The  employ- 
er's ability  and  his  readiness  to  pay  wages  depend  on  the 
measure  of  these  profits.  With  increased  profits  he  can 
afford  to  pay  more  wages.  With  diminished  profits,  he  is 
prompted  to  make  new  stipulations  for  reduced  wages. 
When  the  business  yields  no  profits,  or  involves  loss,  his 
study  is  how  to  close  the  business  and  extricate  his  capital 
at  the  least  possible  sacrifice.  The  only  exception  to  this 
course  is  when  the  unfavorable  result  is  due  to  some 
temporary  cause,  and  regard  for  his  honor  as  respects  en- 
gagements already  made,  and  the  hope  of  better  times 
prompt  him  to  continue  his  business  even  at  a  loss.  It 
stands  fixed  as  a  general  law,  that  the  employer  hires  his 
workmen  and  adjusts  their  wages  with  reference  to  his 
own  profit  from  the  products  of  the  business. 

It  cannot  be  said,  however,  that  this  alone,  any  more 
than  that  previously  stated,  is  the  all-controlling  consider- 
ation. It  is  one  of  prime  importance  in  the  view  of  the 
employer  as  he  enters  into  the  contract.  Its  chief  force  is 
to  define  a  limit  on  the  other  side, — a  limit,  above  which 
wages  cannot  rise  to  continue  long,  without  causing  capi- 
tal to  withdraw  and  wages  to  cease  altogether  on  the  sus- 
pension of  production.  The  laborer  comes  to  the  negotia- 
tion pressing  his  demand  for  such  wages  as  lie  deems 
necessary  for  his  support.  The  employer  comes  offering 
Buch  wages  as  he  thinks  the  profits  of  the  business  will 
enable  him  to  p«y.  The  one  seeks  as  large  and  liberal  a 
support  as  he  can  get,  and  so  sets  his  mark  for  wages  as 


THE   WAGE-FUND  THEOKY.  109 

high  as  possible.  The  other  seeks  as  large  and  munificent 
profits  as  he  can  secure  and  so  sets  his  mark  for  wages 
as  low  as  possible.  The  actual  agreement  will  strike  a 
point  between  the  two,  to  be  definitely  determined  by  con- 
siderations not  yet  named.  These  two  considerations  sim- 
ply determine  the  minimum  limit,  below  which  for  the  long 
run,  wages  cannot  fall,  and  the  maximum  limit  above 
which  for  the  long  run,  wages  cannot  rise.  The  minimum 
limit  is  the  rate  necessary  for  the  support  of  the  laborer  and 
his  family.  The  maximum  limit  is  the  rate  which  will 
leave  to  the  employer,  out  of  the  profits,  a  fair  return  for 
the  use  of  the  capital  and  for  the  care  and  responsibility  of 
management.  No  lines  can  be  drawn  absolutely  fixing 
these  limits  for  all  cases.  They  will  ever  vary  with  cir- 
cumstances. It  will  always  be  an  open  question  with  the 
laborer,  how  little  he  will  try  to  live  on,  and  with  the  em- 
ployer, with  how  little  profit  he  will  be  content.  But  like 
certain  formulas  of  mathematics,  the  statements  indicate 
limitations,  fixed  in  the  nature  of  things,  within  which  the 
equation  of  wages  will  be  found. 

The  Wage-fund  Theory  as  it  is  called,  demands  some 
notice  in  this  connection.  This  theory  is  summarily  stated 
by  Mr.  J.  S.  Mill,  us  follows  : 

"There  is  supposed  to  be,  at  any  given  instant,  a  sum  of 
wealth  which  is  unconditionally  devoted  to  the  payment  of  wages 
of  labor.  This  sum  is  not  regarded  as  unalterable,  for  it  is  aug- 
mented by  saving  and  increases  with  the  progress  of  wealth  ;  but 
it  is  reasoned  upon  as,  at  any  given  moment,  a  predetermined 
amount.  More  than  that  amount,  it  is  assumed  the  wages- 
receiving  class  cannot  possibly  divide  among  them  ;  that  amount 
and  no  less  they  cannot  but  obtain.  So  that  the  sum  to  be  di- 
vided being  fixed,  the  wages  of  each  depend  solely  on  the  divisor, 
the  number  of  participants." 

As  embodying  the  fundamental  principle  that  cnpital 
is  a  prime  factor  in  all  productive  industry,  so  that  labor- 


170  DISTKIBUTIOtf. 

ers  must  be  idle  till  capital  is  furnished  for  them  to  work 
upon  and  to  work  with,  and  the  rate  of  wages  must  depend 
on  the  ratio  between  the  amount  of  capital  and  the  num- 
ber of  laborers  seeking  employment,  there  is  an  element 
of  truth  in  this  theory.  But  as  a  solution  of  the  problem 
of  wages,  it  is  unsatisfactory  and  misleading.  For  its  basis 
is  a  purely  ideal  supposition.  As  a  palpable  fact,  the  sup- 
posed fund  has  no  existence.  If  there  were  such  a  general, 
national  fund  as  the  theory  defines,  it  must  be  an  aggre- 
gate made  up  of  smaller  funds  of  the  kind  possessed  by 
the  individual  employers  of  the  nation.  But  what  employer 
can  ever  point  to  a  specific  portion  of  his  capital  which  he 
feels  that  he  must  expend  in  wages  ? 

That  which  draws  out  wealth  to  be  joined,  as  capital, 
with  labor  in  production,  is  a  hopeful  opportunity  for  in- 
creasing wealth  by  the  profits  of  production.  In  starting 
an  enterprise,  a  certain  amount  of  capital  must  be  provided. 
The  bulk  of  this  capital  is  put  into  what  English  people 
call  the  "plant,"  that  is  fixtures,  buildings,  machinery, 
etc.  A  portion  is  also  used  in  the  purchase  of  a  first  stock 
of  materials.  For  wages,  it  may  be  that  a  small  portion  of 
the  original  capital  will  be  reserved,  bat  it  is  only  just 
enough  to  support  the  laborers  in  the  outset,  till  the  avails 
of  the  products  come  in.  More  likely  what  is  needed  for 
wages  will  be  borrowed  from  the  bank,  in  anticipation  of 
coming  sales.  After  the  returns  begin  to  appear,  they 
are  thenceforward  depended  on,  first  for  the  payment  of 
wages,  then  to  keep  the  plant  in  repair  and  to  replenish 
materials,  and  finally  to  reward  the  capitalist.  According 
to  the  measure  of  the  profits,  the  work  will  be  extended, 
new  laborers  will  be  called  in  and  higher  wages  will  be 
paid.  The  manager  recognizes  no  such  thing  as  a  wages- 
fund,  but  he  does  most  carefully  consider  the  profit  and 
loss  item  on  his  balance-sheet. 

At  this  present  writing  in  1877,  we  have  seen  for  two 


CUSTOMARY   RATE  OP   WAGES.  171 

or  three  years  much  capital  idle,  locked  up  in  factories 
which  are  closed,  and  thousands  of  laborers  without  work 
and  without  wages.  In  other  cases,  the  business  is  still 
run  on  reduced  time  and  reduced  wages,  with  no  profit. 
At  the  same  time,  we  have  seen  the  banks  overloaded  with 
a  plethora  of  money,  whose  owners  are  most  anxious  to 
find  some  way  of  putting  it  into  profitable  investment. 
This  condition  of  things  is  explained  by  the  fact  that  from 
certain  causes,  which  we  will  not  now  attempt  to  name, 
industry  failed  to  yield  its  customary  and  expected  returns. 
There'  were  no  profits,  and  hence  employers  could  pay  no 
wages  or  could  pay  but  a  part  of  what  they  had  previously 
paid.  They  could  bear,  for  a  time,  to  lose  the  remunera- 
tion of  the  capital  invested  in  the  mills,  but  to  add  to  this 
the  steadily  exhausting  payment  of  wages  would  be  ruin- 
ous. They  dare  not  borrow  and  the  banks  dare  not  loan 
money  to  be  so  used.  Now  it  makes  the  case  no  plainer, — • 
does  it  not  rather  confuse  matters,  to  say  that  somehow  the 
financial  revulsion  curtailed  the  wages-fund?  Is  it  not 
more  philosophical  and  more  in  accord  with  common  sense 
to  say  that  wages  fail  or  decline  because  industry  fails  to 
yield  the  necessary  profit?  This  is  the  plain  matter  of 
fact.  Ideal  funds,  ideal  divisor  and  dividends,  ideal  aver- 
ages cannot  clear  up  the  problem.  What  has  been,  must 
be,  whenever,  for  whatever  reason,  values  produced  fail  to 
show  a  sufficient  surplus  above  the  values  consumed. 

3.  What  has  been  the  Customary  rate  of  Wages  is  a 
consideration  of  some  force  in  determining  the  rate  that 
shall  be.  This  means  no  more  than  that  there  is  always  a 
presumption  in  favor  of  existing  usage,  which  on  one  side 
or  the  other  may  be  more  or  less  effectually  pleaded  in  the 
negotiation  between  the  parties.  This  consideration 
always  resists  a  contemplated  change,  and  when  necessity 
compels  a  change  to  be  made,  it  essentially  modifies  the 


172  DISTRIBUTION. 

degree  and  the  time  of  that  change.  Thus  when  in  18G5, 
an  inflation  of  the  currency  in  the  United  States  had 
raised  prices  and  increased  the  cost  of  living,  and  had  at 
the  same  time  stimulated  production  and  increased  the 
value  of  its  returns,  both  necessity  on  the  one  hand,  and 
ability  on  the  other  called  for  an  advance  of  wages.  But 
employers  clung  tenaciously  to  the  customary  rates  and 
yielded  very  slowly  and  reluctantly  to  the  call,  and  after 
all,  stopped  short  of  advancing  wages  in  full  proportion  to 
the  enhanced  prices  and  profits.  Ten  years  later,  we  find 
a  condition  of  things  just  the  opposite.  Both  profits  and 
the  cost  of  living  were  greatly  reduced,  and  employers 
were  constrained  to  reduce  wages  accordingly.  But  then 
the  laborers  clung  to  existing  rates  and  resisted  the  reduc- 
tion, in  many  cases  with  violence.  This  tendency  always 
appears  qualifying  the  effect  of  other  considerations.  It 
is  like  the  law  of  inertia  in  physics.  It  resists  or  impedes 
all  changes  of  wages,  and  though  an  incidental,  and  com- 
paratively unimportant  consideration,  it  needs  to  be  recog- 
nized and  regarded. 

4.  Competition  is  "beyond  all  others  the  controlling  con- 
sideration in  determining  wages.  "We  cannot  say  of  this 
that  it  is  absolutely  controlling.  For  the  considerations 
previously  named  must  be  to  some  extent  respected.  But 
we  do  recognize  competition  as  more  influential  than  any 
or  all  of  these.  It  cannot  nullify,  but  it  does,  in  a  meas- 
ure, overbear  them. 

Competition  is  the  endeavor  of  two  or  more  persons  to 
gain  the  same  thing,  at  the  same  time.  In  this  matter  of 
wages,  it  appears  in  either  or  both  of  the  parties  to  the 
contract.  Many  laborers  are  seeking  wages  and  good 
wages  at  the  same  time.  Many  employers  are  seeking 
profits  and  large  profits  at  the  same  time.  Competition 
becomes  active  just  in  proportion  to  the  comparative  nttm- 


COMPETITION-.  173 

bers  on  either  side.  If  the  number  of  laborers  is  just 
sufficient  to  do  the  work  desired  by  the  employers,  on 
terms  satisfactory  to  both  parties,  there  will  be  no  con) pe- 
tition on  either  side  ;  but  that  balance  is  seldom  realized, 
and  never  stable.  Whenever  it  is  disturbed,  competition 
sets  in.  If  the  number  of  laborers  is  large  in  proportion 
to  the  employment  offered,  the  competition  is  active  among 
the  laborers.  Each  rather  than  lose  his  chance  for  wages, 
will  lower  the  price  demanded  for  his  labor.  If  the  num- 
ber of  employers  and  the  amount  of  capital  they  command, 
is  large  in  proportion  to  the  number  of  laborers,  the  com- 
petition is  active  among  employers.  Each  rather  than  lose 
his  chance  for  anticipated  profits,  will  raise  the  price 
offered  for  the  labor  he  wants.  Thus,  as  Mr.  F.  A. 
Walker  states  the  case,  "  Each  laborer  will  sell  his  labor 
at  the  highest  price  which  any  employer  can  afford  to  give, 
since  the  employers  are  in  competition  among  themselves 
for  labor.  Each  employer  will  get  his  labor  at  the  lowest 
price  at  which  any  laborer  can  afford  to  sell  it,  since  the 
laborers  are  in  competition  among  themselves  for  employ- 
ment. The  lowest  price  at  which  any  laborer  will  sell  his 
labor,  is  thus  the  highest  price  which  any  employer  can 
afford  to  pay." 

If  for  any  reason,  the  wages  in  a  particular  branch  of 
industry  rise  above  the  ordinary  rate,  a  speedy  rush  of 
laborers  into  that  employment  intensifies  competition  till 
the  wages  are  brought  down.  If,  on  the  other  hand,  a  par- 
ticular form  of  production  yields  profits  above  the  ordinary 
rate,  there  comes  a  rush  of  employers  with  their  capital 
into  that  branch  of  industry  and  in  their  competition  with 
each  other,  wages  are  raised,  products  are  multiplied  and 
cheapened  till  the  profits  are  brought  down  to  the  ordinary 
level.  The  principle  of  competition  tends  to  adjust  to 
each  other  the  natural  increase  of  population  on  the  one 
side,  and  the  natural  increase  of  capital  on  the  other,  so 


174  DISTRIBUTION" 

as  to  keep  the  ratio  uniform  and  hold  wages  steadily  in  an 
equilibrium  most  favorable  to  the  interests  of  all.  The 
tendency  is  manifest,  though  a  perfect  result  is  hindered 
by  the  inherent  difficulty  of  transferring  laborers  from  one 
place  or  occupation  to  another,  as  compared  with  the 
facility  with  which  capital  and  commodities  are  trans- 
ferred. 

If  competition  were  universally  free  and  fair,  no  doubt 
present  inequalities  of  condition  would  be  removed,  and 
the  burden  and  the  benefits  of  human  industry  would  be 
equally  distributed.  Conflicting  interests  would  be  har- 
monized by  it,  so  as  certainly  to  secure  the  greatest  good 
of  the  greatest  number.  It  would  adjust  the  customary 
rate  of  wages  at  that  golden  mean  which  would  ensure  a 
comfortable  support  to  laborers  and  adequate  profits  to 
employers.  Something  like  this  is  the  theoretical  ideal  of 
Political  Economy  toward  which  its  principles  tend.  As 
the  science  is  more  fully  unfolded  and  more  freely  applied 
to  all  industries,  and  all  classes,  competition  does  become 
more  free  and  fair,  and  more  efficient,  as  the  grand  regu- 
lator of  production,  distribution  and  exchange.  But  to 
study  the  practical  problems  of  human  industry,  especially 
this  problem  of  wages,  on  the  assumption  that  this  ideal 
is  or  can  be  made  actual,  is  as  absurd  as  it  would  be,  in 
practical  mechanics,  to  take  as  actual  facts,  the  mathe- 
matical ideals  of  points  and  lines  and  forces  and  motions, 
and  proceed  to  plan  an  engine  without  regard  to  the  gross- 
ness  of  matter,  or  the  resistance  of  the  atmosphere,  of 
friction  and  of  gravitation.  As  the  world  goes,  self-inter- 
est pushed  to  the  extreme  of  over-reaching  selfishness,  is 
continually  interfering  with  competition  to  make  it 
neither  free  nor  fair.  Thus,  in  the  actual  working  of 
competition,  falsehood,  trickery  and  fraud  are  introduced 
in  manifold  and  subtle  forms.  In  the  intense  struggle  of 
conflicting  interests  also,  high-handed  measures  are  adopted 


STRIKES   AND  TRADES-UNIONS.  175 

to  restnct  or  rule  out  competition,  because  in  its  nor- 
mal working,  it  hinders  selfish  greed  from  attaining 
its  ends. 

Hence,  the  Combinations  to  resist  competition,  which 
are  entered  into  on  either  side,  demand  some  notice  in  this 
connection.  Combinations  of  laborers  with  respect  to 
wages  take  two  forms,  which  though  often  blended,  may 
be  best  presented  separately.  They  are  Strikes  and 
Trades-unions. 

A  Strike  is  a  mutual  agreement  of  a  number  of  work- 
men to  demand  of  their  employers  certain  terms,  and  to 
stop  work  till  the  demand  is  granted.  The  right  of  a 
laborer  to  define  the  terms  of  the  contract  with  his  em- 
ployer so  as  to  secure  his  own  interest  cannot  be  questioned. 
That  involves  also  the  right  to  refuse  to  labor  except  on 
those  terms.  Neither  can  the  right  of  numbers,  having 
common  interests,  to  combine  in  counsel  and  effort  to  pre- 
sent and  maintain  their  claim  be  questioned,  so  long  as 
they  do  not  interfere  with  the  freedom  of  others.  When, 
however,  the  striking  party  uses  force  either  to  compel 
others  to  join  the  combination  or  to  prevent  their  working 
except  on  the  terms  which  they  dictate,  there  is  a  mon- 
strous violation  of  a  most  sacred  right, — a  right  which 
should  be  ever  dearest  of  all,  to  the  laborer, — the  right  to 
do  what  he  will  with  himself,  his  time,  his  strength,  his 
skill.  Yet  to  be  effective,  the  strike  must  suppress  all 
competition.  That  is  its  chief  aim.  It  must  bring  all 
competent  to  perform  the  labor  in  question  into  the  com- 
bination, or  prevent  those  outside  from  coming  in  to  fill 
the  places  vacated  by  the  strikers.  Hence  strikes  almost 
inevitably  lead  to  a  violent  outrage  upon  the  most  precious 
right  of  freemen.  TurgOt,  the  great  financial  minister  of 
the  French  King  Louis  XVI.,  said,  a  hundred  years  ago, 
"  God  in  giving  toman  wants,  has  made  the  right  to  labor 


176  DISTRIBUTION'. 

the  property  of  all  men,  and  this  property  is  the  first,  the 
most  sacred  and  the  most  imprescriptible  of  all." 

Apart  from  this  great  wrong,  a  strike  may  do  some 
good  service  as  a  strong  and  determined  assertion  of  a  rea- 
sonable claim.  The  claim  is  reasonable  only  when  the 
necessities  of  the  laborers  require  and  the  actual  profit  of 
the  industry  permits  the  increase  of  wages,  or  whatever  of 
better  terms  is  insisted  on.  In  such  a  case,  the  measure 
may  prove  successful  and  yield  an  advantage  sufficient  to 
compensate  for  the  temporary  serious  sacrifice  involved. 
If,  however,  the  terms  demanded  will  so  reduce  or  endan- 
ger the  profits  as  to  leave  no  inducement  for  the  em- 
ployer to  devote  his  energies  and  capital  to  the  business, 
the  effect  of  the  strike  can  be  only  disastrous  to  all  parties. 
It  is  evident,  therefore,  that  strikes  cannot  absolutely  con- 
trol wages.  There  is  a  chance  that  in  occasional  instan- 
ces, they  may  yield  a  real  benefit.  But  the  probabilities 
are,  as  illustrated  by  many  facts,  that  they  will  be  attended 
with  grievous  wrong  and  in  the  end,  aggravate,  rather 
than  relieve  the  evils  which  prompt  them.  Mr.  Brassey 
says,  "  Strikes  against  a  falling  market  always  fail." 

Trades-unions  are  combinations  of  laborers  of  particu- 
lar trades,  in  permanent  organizations,  to  promote  the  gen- 
eral interests  of  their  respective  fraternities.  These  organi- 
zations had  their  prototype  in  the  "guilds"  of  the  middle 
ages.  Then  the  condition  of  society  was  such  that  no 
rights  were  sacred  or  safe  except  as  they  were  defended  by 
the  strong  arm  of  might,  and  all  privileges  were  held 
under  a  law  of  restriction  and  isolation.  Each  guild  stood 
for  itself  against  other  guilds  and  against  the  community 
generally.  Trades-unions  of  to-day  appear  in  a  better 
character.  They  aim  at  a  variety  of  objects  for  the  mutual 
benefit  of  the  members,  such  as  contributions  for  the  relief 
of  the  sick,  disabled  and  distressed,  and  measures  to  pro- 
mote sympathy,  social  enjoyment  and  some  mental  culture. 


TRADES-UNIONS.  17? 

In  this  aspect,  they  render  beneficial  service,  and  are  wor- 
thy of  praise  and  encouragement. 

But  often,  they  attpmpt  also,  to  use  their  power  of  as- 
sociation with  some  accumulated  money-power,  to  regu- 
late the  rate  of  wages  against  the  normal  action  of  free 
competition.  They  do  this  in  two  ways,  'by  promoting  and 
sustaining  strikes  and  by  restricting  apprenticeship.  A 
strike  under  the  direction  of  a  trades-union,  is  likely  to  be 
better  organized  than  an  independent  strike,  more  wide 
sweeping,  more  persistent,  and  in  its  first  stages  more  re^ 
strained  from  violence.  But  according  to  actual  experience 
thus  far,  it  is  liable  to  insist  on  unreasonable  demands, 
and  in  the  extreme  issue,  it  becomes  uncontrollable  and 
runs  into  wild  and  disastrous  excesses.  In  such  move- 
ments too,  the  union  almost  necessarily  aims  to  establish 
uniformity  of  images,  irrespective  of  the  varying  abilities 
and  efficiency  of  different  workmen,  which  is  an  injustice 
to  the  superior  artisans  as  well  as  to  employers. 

The  attempt  arbitrarily  to  limit  the  number  of  appren- 
tices to  any  trade,  is  directly  opposed  to  free  competition 
and  aims  simply  at  establishing  monopolies.  It  involves 
therefore,  the  injustice  and  mischief  which  are  inherent  in 
the  very  principle  of  monopoly.  It  is  ever  a  forced  exac- 
tion on  the  whole  community  for  the  benefit  of  a  few.  If 
the  measure  could  be  carried  out  universally,  it  would 
simply  make  every  trade  a  monopoly  and  set  the  various 
branches  of  business  in  antagonism  with  each  other,  so  as 
seriously  to  obstruct  all  industry.  Mr.  Brassey,  speaking 
of  this  part  of  the  policy  of  trades-unions  says,  "  Their 
influence  has  too  often  been  essentially  illiberal,  anti- 
social and  calculated  to  establish  among  the  industrial 
classes  of  the  country,  that  subdivision  of  Caste  which  has 
been  the  great  curse  of  India."  Hence,  we  may  add,  this 
policy  is  in  its  very  nature  self-destructive  and  impractica- 
ble. The  most  that  can  be  attained  is  a  partial  and  tern- 


178  DISTRIBUTION. 

porary  advantage,  to  be  more  than  counterbalanced  in  the 
reaction  which  is  sure  to  come. 

It  is  further  to  be  observed  that  the  maintenance  of 
these  trades-unions  involves  a  heavy  tax  on  the  members, 
The  funds  thus  raised  and  the  affairs  of  the  union  are  put 
into  the  hands  of  leaders  who  gain  their  official  positions 
mainly  by  reckless  declamation  against  the  rapacity  of  em- 
ployers and  by  loud  professions  of  sympathy  with  the 
wrongs  of  the  laborers.  These  leaders  are  apt  to  exercise 
their  power  with  despotic  .authority,  and  are  held  to 
slight  responsibility  for  the  disposal  of  funds.  They  have 
thus  a  personal  interest  in  retaining  or  exercising  their 
offices,  which  may  be  quite  at  variance  with  the  real  inter- 
ests of  the  body  of  workmen.  When  an  issue  is  fairly 
joined,  public  interests  are  apt  to  be  recklessly  sacrificed, 
until  public  opinion  which  naturally  inclines  to  favor  the 
wage-receiving  class,  is  turned  against  them,  and  the  power 
of  the  government  is  called  to  interpose.  Then  the  move- 
ment breaks  down,  having  effected  only  loss  and  damage 
to  both  parties, — a  damage  most  severely  felt  by  the  labor- 
ers, the  party  least  able  to  bear  it.  All  this  was  clearly 
illustrated  in  the  disastrous  action  of  the  railroad  brake- 
men  and  firemen  in  1877. 

If  the  prominent  object  of  trades- unions  were,  instead 
of  directly  resisting  competition,  to  keep  competition  free 
and  fair  ;  and  if,  in  the  furtherance  of  this  object,  the  as- 
sociation would  carefully  study  the  essential  conditions  of 
the  wages-problem,  and  inform  themselves  concerning  the 
actual  state  of  their  respective  trades,  with  the  means  of 
improvement  for  the  benefit  of  all,  employers  as  well  as 
employes,  they  might  be  made  to  secure  valuable  purposes.  • 
Then,  the  advantages  of  association  and  the  power  of  com- 
bination would  conduce  to  the  real  and  abiding  prosperity 
of  all  productive  industry. 


COMBINATIONS   OF    EMPLOYERS.  179 

On  the  other  side,  Combinations  of  Employers  are  often 
formed  with  a  similar  aim,  that  is,  to  resist  the  natural 
working  of  competition,  for  a  supposed  advantage  of  their 
own.  Such  combinations  sometimes  aim  to  regulate  the 
exchange  of  products  by  an  agreement  of  those  engaged 
in  a  particular  trade  not  to  sell  below  a  certain  price. 
This  simply  creates  a  form  of  monopoly  in  the  general 
market  of  commodities,  and  belongs  to  the  department  of 
exchange.  We  have  now  to  consider  these  combinations 
only  as  they  attempt  to  regulate  the  rate  of  wages  by  agree- 
ments not  to  pay  above  a  certain  rate.  It  must  be  ad- 
mitted that  every  man  who  possesses  wealth  has  the  right 
to  do  what  he  will  with  his  own.  He  has  the  right  to  say 
what  portion  of  it,  if  any,  shall  be  employed  as  capital  in 
production.  And  as  an  employer  of  labor,  he  has  the 
right  to  say  what  wages  he  is  willing  to  pay  for  certain 
services.  A  number  of  employers  have  also  the  right  to 
unite  for  counsel  and  action  with  respect  to  their  common 
interests,  and  the  matter  of  wages  may  properly  be  con- 
sidered in  such  associations,  provided  they  lay  no  constraint 
upon  the  freedom  of  other  people  to  exercise  similar 
rights.  The  question  before  us  is  one,  not  of  abstract 
rigid  but  of  what  is  feasible  and  ivise.  Can  such  combi- 
nations arbitrarily  determine  rates  of  wages  ?  Is  it  wise  for 
them  to  attempt  such  control  ? 

It  is  obvious  that,  to  be  effective,  the  combination 
must  embrace  all  who  are  engaged  in  the  particular  indus- 
try. This  is  not  an  easy  thing  to  accomplish.  Any  who 
remain  outside  the  combination  may  overbid  for  labor,  and 
so  open  the  door  for  renewed  competition.  Much  more 
difficult  is  it,  nay,  impossible  to  hold  all  the  capital  of  a 
country  bound  by  the  rules  of  the  combination.  If  the 
wages  agreed  on  are  such  as  to  insure  a  margin  of  profits 
above  those  of  business  generally,  free  capital  will  rush  in 
to  engage  in  the  industry,  and  make  its  own  terms  for 


180  DISTRIBUTION. 

labor,  just  as  certainly  as  air  will  rush  in  to  fill  a  vacuum, 
or  as  water  will  flow  to  restore  its  equilibrium,  disturbed. 
These  considerations  preclude  the  success  of  such  attempts 
to  dictate  wages,  except  for  temporary  emergencies,  as 
when  laborers  are  thrown  out  of  other  employments  and 
can  be  easily  substituted  for  those  who  refuse  to  work  for 
the  wages  offered,  or  when  for  some  reason  the  actual  em- 
ployes are  unable  to  change  their  situation. 

The  attempt  to  control  wages  by  the  arbitrary  dictum  of 
such  combinations  against  the  normal  working  of  competi- 
tion is  unwise,  even  if  it  could  be  successful,  because,  more 
than  anything  else,  it  produces  the  impression  that  capital 
is  tyrannizing  over  labor.  This  causes  suspicion  and  discon- 
tent, and  incites  antagonism  and  combinations  on  the  other 
side.  Thus,  the  cheerful  cooperation  of  labor  and  capital 
essential  to  prosperous  industry  is  effectually  prevented. 

The  true  function  of  such  associations  is  to  secure  a 
better  understanding  of  the  laws  of  production  and  of  the 
actual  condition  of  particular  branches  of  trade  and  of  the 
causes,  manifest  and  hidden,  which  vary  the  proceeds  of 
industry.  Associations  of  employers  generally  embody 
more  intelligence  than  those  of  laborers.  More  of  reason- 
able discussion  and  of  broad,  fair-minded  conclusions  may 
therefore  be  expected  of  them. 

Our  conclusion  is  then  that  combinations  on  either 
side,  so  far  as  they  attempt  to  resist  or  prevent  free  com- 
petition, cannot,  in  the  long  run,  materially  influence  the 
rates  of  wages.  If,  however,  representatives  from  both 
sides  could  often  and  freely  meet  for  mutual  explanations, 
candid  discussions  and  the  communication  of  information 
concerning  the  labor-market  and  the  market  for  products, 
many  evils  that  spring  from  vicious,  fraudulent  and  per- 
verted competition  might  be  averted  and  both  wages  and 
profits  would  be  more  permanently  settled  on  the  basis  of 
oven  and  stable  justice  to  all. 


THE  GENERAL  LAW  OF  WAGES.          181 

5.  The  Golden  Rule  of  Christ,  "  Whatsoever  ye  would 
that  men  should  do  to  you,  do  ye  even  so  to  them,"  presents 
another  consideration  of  some  weight  in  determining 
wages,  which  Political  Economy  as  well  as  Christian 
Ethics  may  fitly  recognize  and  enforce.  This  rule  embod- 
ies a  principle  which  tends  to  harmonize  the  action  of  self- 
interest  among  men,  in  all  relations.  Genuine  self-interest 
as  distinct  from  rank  selfishness,  culminates  in  the  adop- 
tion of  this  rule.  There  are  pleasing  indications  that  it  is, 
in  increasing  measure,  regarded  in  the  relations  before  us. 
In  many  large  establishments  like  that  of  Mr.  Bright  in 
England,  and  some  large  factories  in  our  country,  it  is 
made  evident  that  even  corporations  can  have  souls,  and 
that  employes  may  perform  their  labor  with  heartiness 
and  good-will,  for  the  advantage  of  employers,  no  less  than 
for  their  own.  We  cherish  the  fond  hope  that  this  rule 
of  wisdom  and  true  policy  is  destined  steadily  to  gain  a, 
wider  ascendency,  softening  animosities,  inspiring  mutual 
confidence  and  effecting  genial  cooperation,  so  as  to  bring 
out  the  full  power  of  productive  industry  in  results,  larger 
and  more  equably  distributed  than  the  world  has  ever  yet 
known. 

The  general  law  of  wages  may  be  concisely  stated  thus  : 
By  free  Competition,  wages  are  adjusted  to  the  ratio 
between  the  amount  of  Capital  seeking  labor  and  the  num- 
ber of  Laborers  seeking  employment ;  competition  itself 
being  modified  by  some  regard  to  the  cost  of  living,  the  pro- 
ductiveness of  industry,  established  custom,  and  the  prompt- 
ings of  good-will  between  man  and  man. 


CHAPTER  XIV. 

CAUSES     PRODUCING    VARIATIONS     IN     THE 
REMUNERATION   OF  LABOR. 

Special  Circumstances  by  -which  Wages  are 
affected. — -While  the  general  law  stands  as  just  stated, 
it  is  found  that  the  rates  of  wages  differ  considerably  in 
different  employments.  These  variations  spring  mainly 
from  causes  which  vary  the  intensity  of  competition  in  cer- 
tain cases.  They  deserve  however  a  brief,  distinct  notice. 

Wages  are  affected  by  the  ease  or  difficulty,  the  pleasant- 
ness or  unpleasantness,  of  the  employment.  When  the  em- 
ployment for  instance  requires  gi*eat  muscular  effort,  the 
number  of  persons  who  can  accomplish  it,  is  comparatively 
small.  This  diminishes  the  supply,  and  of  course  increases 
the  price.  When  this  is  the  case,  as  men  are  not  usually 
attracted  by  the  prospect  of  hard  labor,  a  smaller  number 
apply  for  this  kind  of  employment.  This  still  further  di- 
minishes the  supply.  Hence,  the  price  will  rise,  as  the 
wages  must  be  increased  sufficiently  to  overcome  this  repug- 
nance. On  the  contrary,  when  the  labor  is  easy,  the  number 
of  persons  both  able  and  willing  to  perform  it,  is  increased  ; 
thus,  the  supply  is  large,  and  wages  fall  in  proportion. 

The  same  effect  is  produced  by  the  general  estimation 
of  the  pleasantness  or  unpleasantness  of  the  employment. 
Any  kind  of  industry  which,  from  necessity,  is  uncleanly, 
commands  higher  wages  than  one  which  can  be  performed 
without  interfering  with  personal  neatness.  One  which 
is  considered  disgraceful,  can  be  supplied  with  laborers, 


CAUSES   AFFECTING    WAGES.  183 

only  by  paying  an  unusual  price.  The  business  of  a  pub- 
lic executioner,  though  not  difficult,  is  disagreeable,  and 
generally  considered  disgraceful ;  and  hence,  in  countries 
where  it  is  made  a  distinct  profession,  it  commands  high 
wages. 

Wages  are  affected  by  the  Skill  required  in  performing 
the  operation.  This  arises  from  two  circumstances  :  First, 
skill  can  be  acquired  only  by  practice  and  education. 
This  is  in  itself  costly,  and  is  an  investment,  for  which 
the  possessor  justly  receives  a  compensation.  And  Second, 
unusual  skill  generally  supposes  some  unusual  endow- 
ment. But  in  proportion  to  the  rarity  of  the  endowment 
must  be  the  smallness  of  the  supply,  and  of  course,  the 
rise  of  price  which  must  be  paid  for  the  product. 

Wages  are  affected  by  the  Confidence  reposed.  Wherever 
a  great  amount  of  capital  is  employed,  it  must,  to  a  very 
considerable  degree,  be  placed  in  the  power  of  some  one 
or  more  agents.  Hence,  if  this  power  be  abused,  or  used 
unwisely,  the  whole  is  liable  to  be  lost.  If  the  manager  be 
careless,  he  may  destroy  it  by  negligence  ;  and  if  he  be  dis- 
honest, he  may  convert  it  to  his  own  emolument.  Now, 
this  union  of  judgment  with  incorruptible  integrity,  is  ab- 
solutely necessary  in  many  of  the  operations  of  production. 
But  such  a  union  is  rarely  to  be  found.  Hence,  while  the 
demand  is  imperative,  the  supply  is  small.  On  this 
account,  though  the  wages  of  such  persons  are  high,  it  is 
generally  found  more  economical  to  employ  them  at  any 
price,  than  to  intrust  important  affairs  to  the  incompetent 
and  the  vicious.  This  is  one  of  the  rewards  which,  in  the 
course  of  human  events,  God  bestows  upon  wisdom  and 
virtue. 

Wages  are  affected  by  certainty  or  uncertainty,  con- 
stancy or  inconstancy  of  employment.  Division  of  labor 
requires  that  a  man  devote  himself  exclusively  to  a  single 
employment,  and  therefore  that  his  whole  emolument  be 


184  DISTRIBUTION. 

derived  from  that  employment.  Hence,  when  the  oppor- 
tunities of  employment  are  rare,  the  wages  for  each  par- 
ticular operation  must  be  greater,  since  we  must  pay.  not 
only  for  the  time  actually  employed,  but  also  for  that  time 
which  is  lost  to  the  laborer,  while  waiting  for  employment. 
We  pay  more  money  for  riding  a  mile  in  a  hackney-coach 
than  for  riding  the  same  distance  in  a  stage-coach,  because 
the  hackney-coachman  may  stand  half  a  day  in  waiting, 
before  he  finds  another  customer.  Thus  also,  when  a  trade 
can  be  exercised  for  only  a  part  of  the  year,  as  in  the  case 
of  a  bricklayer,  you  pay  to  the  laborer  higher  wages,  be- 
cause he  must  receive  enough  to  compensate  him  for  the 
time  in  which  he  is  obliged  to  be  idle.  The  crews  of  whal- 
ing vessels  are  paid  partly  in  shares  of  the  oil  taken.  Their 
pay  for  a  successful  voyage  must  therefore  exceed  ordinary 
seamen's  wages  to  balance  the  occasional  loss  when  the  ship 
comes  home  "  clean"  or  witlmit  any  oil. 

Another  circumstance  ivhich  affects  the  price  of  wages, 
is  the  certainty  or  uncertainty  of  success.  In  the  ordinary 
avocations  of  life,  if  a  man  acquire  the  requisite  skill,  he 
will  almost  invariably  find  employment.  In  the  profes- 
sions it  is  not  so.  Those  who  have  prepared  themselves  at 
great  expense  for  the  practice  of  a  profession,  unable  to 
find  employment,  sometimes  relinquish  it  for  another  pur- 
suit. When  such  a  risk  exists,  the  wages  of  labor  should 
be  greater,  for  the  laborer  is  entitled  to  a  remuneration  for 
the  risk  of  this  loss  of  time  and  of  capital. 

These  are  presented  by  Adam  Smith,  as  the  principal 
circumstances  on  which,  irrespectively  of  the  influence  of 
capital,  the  price  of  labor  depends.  It  will  be  at  once 
seen  that  they  are  susceptible  of  very  great  variety  of  modi- 
fication and  combination,  and  that  frequently,  several  of 
them  must  be  taken  into  the  account,  in  order  to  explain 
the  reason  of  the  high  or  low  price  of  any  particular  form 
of  labor. 


SALARIES,    COMMISSION'S   AND   FEES.  185 

The  Remuneration  of  labor  by  Salaries,  Com- 
missions and  Fees,  while  governed  to  some  extent  by 
the  principles  of  wages,  involves  also  some  peculiarities 
which  must  be  mentioned.  Generally  the  labor  which  is 
thus  compensated  is  of  a  kind  that  requires  both  superior 
natural  gifts  and  special  and  expensive  education.  It  is 
also  true  of  it  that,  on  the  one  side,  personal  character  and 
reputation,  and  on  the  other,  the  respectability,  dignity 
and  permanence  of  the  service  are  estimated  as  of  much 
consequence.  These  considerations  more  or  less  rule  out 
ordinary  competition,  and  put  the  mutual  contract,  in 
each  case,  on  special  grounds. 

The  whole  number  included  in  the  classes  whose  labor  is 
thus  compensated,  is  small  compared  witli  the  great  body 
of  those  who  receive  w7agcs.  Yet  to  the  few  so  favored,  a 
large  share  of  the  proceeds  of  industry  is  actually  dis- 
tributed. At  first  view,  this  looks  like  a  grievous  injus- 
tice. But  it  must  be  remembered  that  all  private  interests 
are  promoted  when  public  affairs  are  guided  by  men  of 
ability  and  integrity,  and  that  a  wise  and  vigorous  executive 
administration  is  all  essential  to  make  any  business  profit- 
able. Wages  must  come  ultimately  out  of  the  proceeds 
of  the  labor  done,  and  the  amount  of  these  proceeds 
depends  much  on  active  invention  and  efficient  manage- 
ment. Hence  it  is  for  the  advantage  of  every  ordinary 
laborer  that  the  places  of  special  trust  above  him  be  filled 
by  men  of  capacity  well  trained.  Such  men  are  compara- 
tively few.  They  are  wanted  everywhere,  and  therefore 
they  can,  to  a  great  extent,  make  their  own  terms  of  service. 
At  the  same  time,  it  is  good  economy,  as  we  have  seen  in 
a  previous  chapter,  to  pay  the  price  necessary  to  secure 
such  service. 

In  mechanical  industry,  the  qualifications  which  set 
one  and  another  above  the  wage-receiving  class,  are  of- 
ten brought  out  in  self-made  men  so  called — men  who 


186  DISTRIBUTION. 

begin  in  the  lowest  rank  of  laborers,  and  reveal  their  rare 
endowments  under  a  process  of  self-development,  as  oppor- 
tunity is  offered.  Thus  George  Stephenson  began  his  in- 
dustrial career  as  an  engine-boy  at  the  lowest  wages. 
Slowly  and  steadily,  as  his  natural  aptness  found  oppor- 
tunity to  exercise  itself,  he  rose  in  grade  as  a  workman, 
until  at  the  age  of  thirty,  he  was  made  an  engine-wright 
at  Killingworth  colliery,  at  a  salary  of  one  hundred  pounds 
a  year,  when  he  declared  that  his  fortune  was  made.  And 
so  it  was,  but  in  another  sense  than  he  dreamed.  For 
that  position  brought  him  into  connection  with  the 
first  efforts  made  to  construct  a  locomotive-engine,  and 
soon  his  latent  genius  flashed  out  in  those  splendid 
achievements  which  gained  for  him  the  title  of  "  the  father 
of  raihvays."  For  the  services  of  his  later  years,  he  re- 
ceived munificent  remuneration.  But  that  seems  of  little 
account  compared  with  the  benefit  conferred  on  all  depart- 
ments of  industry  and  on  the  civilized  world  by  the  fruits 
of  his  inventive  genius  and  trained  judgment.  One  such 
eminent  example  quickens  and  encourages  the  activities  of 
thousands  who  raise  themselves  from  the  ranks  to  various 
positions  of  responsibility,  for  the  advantage  of  all,  no  less 
than  for  their  own  emolument. 

In  other  cases,  long  years  of  careful  study  with  the  best 
facilities  for  education,  give  to  the  man  a  special  prepara- 
tion for  the  special  service  of  his  life.  So  it  was  with 
Robert  Stephenson,  the  son  of  George.  His  father,  well 
appreciating  the  value  of  advantages  he  had  never  enjoyed, 
spared  no  expense  to  add  to  the  son's  inherited  genius  for 
mechanics,  the  culture  and  discipline  of  an  excellent  edu- 
cation. Enabled  thus  to  start  in  a  position  where  he  com- 
manded a  high  salary,  he  pressed  his  way  rapidly  on  to  the 
highest  eminence,  as  a  constructor  of  some  of  the  most 
stupendous  iron  bridges  in  the  world,  to  a  seat  in  the  Brit- 
ish parliament  also,  and  to  places  of  honor  in  scientific 


SALARIES,    COMMISSIONS   AND    FEES.  187 

associations.  Ho  distanced  all  competitors  and  was  paid  a 
rich  reward  for  his  labors,  but  these  labors  enriched  the 
world  in  a  far  higher  degree. 

In  the  learned  professions,  especially  those  of  law  and 
medicine,  a  man  of  marked  ability,  trained  by  thorough 
education,  enriched  by  varied  experience,  and  having  at 
command  the  treasures  of  learning,  receives  for  his  services 
extraordinary  remuneration.  When  personal  liberty  and 
security,  or  great  amounts  of  property  are  at  stake,  all  men 
reason  that  it  is  sound  economy  to  employ  the  best  legal 
talent,  at  any  price.  Such  men  as  Webster,  Choate  and 
Evarts  have  retaining  fees  thrust  upon  them,  more  than 
they  desire,  and  for  their  own  relief  are  almost  forced  to 
sift  out  the  business  offered,  by  high  charges.  So  too, 
when  health  and  life  are  endangered  by  disease,  all  are 
moved  to  seek  the  best  medical  counsel.  Such  physicians 
as  Nelaton,  Mott  and  Parker  would  be  overrun  with  calls 
if  they  did  not  set  their  fees  so  high  as  to  rule  out  many. 
In  these  cases,  acquired  reputation  comes  in  always  to  en- 
hance the  remuneration  asked  and  freely  given.  That 
reputation  has  been  gained  at  the  cost  of  years  of  careful, 
faithful,  successful  practice,  and  has  a  corresponding  value. 
It  may  be  that,  for  a  much  smaller  compensation,  the 
young,  talented,  well-read  lawyer  would  manage  a  case  as 
well  or  better  than  the  old  practitioner  of  note  ;  but  you 
have  no  assurance  of  this,  while  the  other's  reputation 
does  give  a  certain  promise  of  effective  service. 

Most  marked  of  all  is  this  difference  of  remuneration 
in  the  departments  of  Fine  Art ;  for  it  is  here  that  genius 
brings  forth  its  most  brilliant  productions,  which  seem  in 
some  cases,  almost  supernatural.  A  few  lines  from  the 
pen  of  a  Bryant  or  a  Longfellow,  a  few  strains  from  a 
Jenny  Lind  or  a  Kellogg,  a  painting  done  by  a  Church  or 
a  Bierstadt.  a  statue  wrought  by  the  chisel  of  a  Thorwald- 
sen  or  a  Powers,  command  prices  that  seem  to  common 


188  DISTRIBUTION. 

folk  absurdly  extravagant.  But  these  products  bear  each, 
some  charms,  the  strokes  of  genius,  which  only  the  gifted 
few  can  I'ender, — which  are  inimitable.  Those  endowed 
with  the  capacity  for  such  work  are  set  above  the  reach  of 
competition,  in  the  enjoyment  of  an  unrestricted  monopoly. 

Authors  of  books  are  generally  compensated  by  a  com- 
mission or  percentage  of  the  price  of  each  book  sold. 
Often,  the  actual  remuneration  received  has  but  little 
respect  to  either  the  genius,  the  learning  or  the  labor  of 
the  author.  The  popular  taste  or  want,  and  the  manner 
in  which  the  production  meets  a  present  condition  of  the 
public  mind,  are  often  of  more  account  than  all  other 
considerations.  Thus  the  richest  returns  are  commonly 
won  by  publications  which  are  ephemeral  and  trifling.  In 
many  cases  such  success  seems  a  matter  of  mere  chance, 
and  one  successful  hit  gives  no  certain  assurance  of  a  sec- 
ond like  result. 

To  account  for  the  high  scale  of  remuneration  awarded 
to  the  kind  of  service  we  have  been  considering,  it  is  often 
said  that  the  expense  of  time  and  money  involved  in  obtain- 
ing the  requisite  education,  must  be  compensated  by  adding 
to  common  wages  enough  at  least,  to  pay  ordinary  interest 
on  the  original  outlay, — also  that  success  in  these  profes- 
sions is  uncertain,  and  'the  remuneration  must  therefore 
cover  the  greater  risk,  so  far  at  least,  as  to  balance  the 
reward  of  eminent  success,  against  the  loss  of  many  by 
utter  failures.  These  considerations  do  indeed  justify  the 
extraordinary  compensation  on  grounds  of  equity.  But 
in  the  actual  contract  between  parties,  they  are  seldom,  if 
ever  regarded.  The  estimated  importance  of  the  service 
or  the  special  desirableness  of  the  product  on  the  one  side, 
and  the  diminished  force  or  entire  absence  of  competition 
on  the  other,  prevail  to  settle  the  compact. 

Custom  or  some  general  agreement,  formal  or  informal, 
fixes  rates  of  remuneration  for  various  grades  of  service 


PROFESSIONAL  FEES.  189 

below  those  of  singular  eminence.  Thus  for  book-keepers, 
cashiers,  foremen,  superintendents  of  departments,  travel- 
ing agents,  etc.,  there  is  recognized  an  ordinary  rate  of 
salaries  or  commissions,  with  room  for  some  variation  out 
of  regard  to  comparative  ability  and  trustworthiness.  In 
the  legal  and  medical  professions,  the  fees  are  fixed  by  a 
general  agreement  or  understanding,  at  a  scale  which  is  sus- 
tained by  the  "  esprit  du  corps."  Where  public  interests 
are  involved,  legislation  is  sometimes  culled  to  define  the 
fees  that  may  be  collected  by  legal  process.  Personal,  con- 
siderations also  have  some  weight.  A  man's  relationship 
to  the  leading  manager  of  a  business,  sometimes  secures 

o  O  7 

for  him  special  remuneration.  Another's  long  continued, 
faithful  service  is  justly  regarded  as  having  earned  for  him 
a  right  to  his  position  and  compensation,  against  the  com- 
petition of  new  and  untried  men. 

In  connection  with  great  stock-corporations,  an  abuse 
sometimes  appears,  when  the  salaried  managers,  having 
contrived  to  control  a  large  majority  of  the  stock,  appoint 
themselves  and  fix  their  compensation  at  their  own  will. 
This  must  be  set  down  as  a  purely  arbitrary  exercise  of 
power,  unrestrained  by  right  or  reason.  Very  often,  it 
involves  direct  fraud  on  other  stockholders,  and  leads  to 
ruinous  mismanagement.  Sound  economy  and  moral  in- 
tegrity join  to  reprobate  such  action. 

Tlie  honor,  dignity  and  permanence  of  certain  positions 
demanding  a  high  order  of  talent,  arc  considerations  which 
often  make  men  willing  to  accept  a  less  remuneration  than 
their  services  elsewhere  might  command.  Tims  a  lawyer 
of  eminence  whose  annual  income  from  practice  at  the 
bar  would  be  twenty-five  thousand  dollars,  may  accept  a 
place  for  life  on  the  bench  of  the  United  States  Supreme 
Court  at  a  salary  of  only  ten  thousand  dollars.  These 
considerations  are  of  much  account  in  the  remuneration 
of  clergymen  and  teachers.  Men  in  those  professions  are 


190  DISTRIBUTION. 

confessedly  underpaid,  when  compared  with  men  of  equal 
ability  and  attainments  in  other  occupations.  But  their 
offices  secure  to  them  social  standing  and  respectability, 
and  their  duties  are  congenial  to  cultivated  minds.  But 
above  all  these,  especially  with  clergymen  true  to  their 
high  calling,  there  is  a  spirit  of  devotion  to  the  work  of 
Christian  beneficence,  for  the  well-being  of  mankind,  which 
finds  a  satisfaction  and  joy  in  the  service  itself  ;  and  thus 
goes  far  to  balance  in  their  estimation,  the  meagreness  of 
their  pecuniary  reward. 

The  Remuneration  for  Women's  Labor  in  most 
employments,  is  less  than  that  of  men  for  similar  services. 
The  fact  of  this  difference  is  apparent  on  every  hand,  and 
the  exceptions  are  few.  Is  it  right  or  reasonable  that  it 
should  be  so  ?  The  answer  to  this  question  can  be  reached 
only  as  the  reasons  which  account  for  the  fact  are  fairly 
weighed.  We  attempt  therefore  a  concise  presentation  of 
these  reasons. 

a.  It  is  a  prevalent  opinion  that  for miscellaneous  labor, 
ivomen  are  by  physical  and  mental  constitution  inferior  to 
men  in  the  qualities  essential  to  highest  efficiency.  This 
may  be  a  mistaken  opinion,  based  upon  prejudice  and 
confirmed  by  long  usage.  Yet  so  long  as  it  prevails,  it 
will  determine  practice.  We  step  into  a  cotton  factory, 
and  in  the  spinning-room  we  see  men  employed 
almost  entirely,  because  women  have  not  the  strength 
needed  to  handle  the  jennies.  In  the  weaving-room  we 
find  two  or  three  men  working  with  a  hundred  women. 
The  work  is  light  for  all.  The  women  attend  the  looms  as 
well  or  better  than  the  men,  but  it  would  not  be  safe  to 
leave  the  room  wholly  to  their  charge,  because  there  come 
exigencies  when  some  qualities  are  needed  which  the  woman 
has  not  and  the  man  has.  This  is  especially  true  with 
respect  to  the  oversight  of  numbers.  For  general  superin- 


WOMEN'S  WAGES.  191 

tendencc,  some  masculine  qualities  are  supposed   to  be  \ 
essential.     Just  so  it  is  in  a  large  public  school.     For  the 
greater  part  of  the  details  of  instruction,  female  teachers  do    , 
as  well  or  better  than  those  of  the  other  sex,  but  it  is  the  L 
general  belief  that  to  work  well,  the  school  must  have  a 
man  at  its  head.     Mothers  themselves  are  distrustful  of 
any  large  school  which  has  not  a  man  near  enough  for 
timely  interposition  to  meet  emergencies.     To  change  this  • 
general  opinion  will  require  something  move  than  an  occa- 
sional instance  of  a  woman  possessing  what  must  still  be 
termed  masculine  force  and  executive  ability. 

b.  In  the  order  of  nature  and  in  the  constitution  of  society, 
the  sphere  of  activity  for  most  women  seems  ordained  to  be 
in  the  Home,  each  the  solace  and  help  of  a  husband,  by 
whom  she  is  supported  and  protected,  and  the  nourisher 
and  mentor  of  the  children.     This  is  prescribed  by  nature 
as  the  first,  simplest  and  most  universal  application  of  di- 
vision of  labor.     The  numbers  of  the  two  sexes  are  almost 
precisely  equal  the  world  over.     As  a  rule,  it  is  not  good 
for  man  or  woman  to  be  alone.     Where  marriage  is  dis- 
couraged,  there   is   something   radically  defective  in  the 
structure   or   vicious   in  the  habits  of   society.     All  this 
bears  on  the  question  before  us,  since  it  tends  to  rule  out 
women  from  many  common  occupations  of  productive  in- 
dustry, and  to  create  the  impression  that  it  is  unwomanly 
to  enter  them.     This  impression  may  run  to  the  extreme 
of  a  false  delicacy,  and  so  unduly  limit  the  occupations  in 
which  women  who  are  thrown  upon  their  own  support  are 
willing  to  engage.     But  nevertheless,  there  is,  in  the  very 
nature  of  things,  some  check  on  their  freedom,  from  this 
can  se. 

c.  The  wages  of  men  are  adjusted  to  the  presumption 
that  each  has  or  tvill  have  a  family  to  provide  for,  and  (hose 
of  women  to  an  anticipation  that  each  will  in  due  time,  by 
marriage,  be  relieved  of  her  own  support.     A  very  large 


192  DISTRIBUTION. 

proportion  of  the  women  who  to-day,  depend  on  their 
own  labor,  are  young  persons  who  are  passing,  one  after 
another,  into  new  relations,  where  they  are  to  be  cared  for 
by  men's  earnings.  We  recognize  the  hardship  which  this 
order  of  things  brings  on  some  women  who,  in  the  vicissi- 
tudes of  life,  are  compelled  by  their  own  labor  to  support 
not  only  themselves  but  their  children,  and  it  may  be  sick 
or  intemperate  and  thriftless  husbands.  But  the  number 
of  these  is  comparatively  small.  The  laws  of  our  science, 
like  the  laws  of  material  nature,  are  adjusted,  on  general 
principles,  to  general  conditions.  Some  incidental,  occa- 
sional distress  is  produced  by  their  inflexibility,  and  yet 
that  very  feature  of  the  laws  may  be  necessary  to  secure 
the  greatest  good  of  the  greatest  number. 

d.  The  actual  organization  of  productive  industry,  in 
all  departments  which  give  place  to  both  sexes,  is  established 
on  this  basis  of  less  compensation  for  women's  worlc.  In 
most  cases,  the  greater  cheapness  of  female  labor  is  the 
chief  reason  for  employing  it.  The  cost  of  production  is 
diminished  thereby.  The  prices  of  all  commodities  into 
which  this  kind  of  labor  enters  are  determined  accord- 
ingly. The  universal  competitions  of  trade  with  their 
manifold  complications  are  threaded  through  and  through 
with  this  element  of  women' 's  cheap  labor.  The  whole 
body  of  consumers  are  accustomed  to  enjoy  a  benefit  from 
it.  Hence  the  principle  cannot  be  easily  eliminated.  If 
the  rule  is  a  false  one,  it  cannot  be  suddenly  changed 
without  deranging  the  entire  systems  of  production  and 
exchange.  If  the  prices  of  men's  labor  be  reduced  to  the 
level  of  women's  wages,  widespread  and  aggravated  distress 
among  all  the  laboring  classes  must  follow.  If  the  change 
be  on  the  other  side,  the  prices  of  goods  included  among 
the  necessaries  of  life,  must  be  raised  proportionally,  pro- 
ducing general  distress  in  another  way.  All  this  indicates 
that  the  established  order  of  things  presents  such  obstruo 


WOMEN'S  WAGES.  193 

tions,  that  any  change  must  be  gradual,  and  that  there 
are  great  general  interests  to  be  regarded  in  every  step  of 
the  movement. 

e.  There  are  feminine  instincts  which  prompt  women  to 
draw  back  from  many  occupations  because  they  are  coarse, 
or  involve  too  rough  jostling  ivith  the  world.  These  in- 
stincts need  carefully  to  be  preserved,  for  the  charm  of 
womanhood  is  gone  when  they  are  crushed  out.  The  pre- 
vailing tendency  is  to  make  them  excessive  so  that  they 
grow  into  the  sentiments  of  false  delicacy  before  alluded 
to.  Hence  few  occupations  are  open  to  women,  and  these 
are  so  crowded  that  competition  is  intense  and  low  wages 
are  inevitable.  It  is  no  more  in  the  power  of  employers  to 
resist  this  pressure  than  it  would  be  in  the  power  of  a  man 
with  his  bare  arm  to  stem  the  Mississippi's  current.  All 
the  considerations  before  named,  concentrate  here,  and 
here,  whatever  means  are  employed  to  relieve  the  evil  or 
the  wrong,  must  find  their  application.  False  ideas  of 
respectability  keep  thousands  of  women  in  lone  garrets, 
plying  their  needles  for  a  reward  which  barely  saves  them 
from  starvation,  while  there  is  a  steady  demand  for  em- 
ployment in  domestic  service,  where,  well  fed,  in  comforta- 
ble homes,  they  might  earn  wages  which  would  enable 
them  steadily  to  lay  up  a  little  surplus. 

/.  This  sharp  competition  is  greatly  intensified  by  the 
fact  that  many  women  who  seek  employment  are  partly  or 
wholly  supported  by  other  resources  than  their  own  labor. 
Some,  under  the  pressure  of  necessity,  simply  to  escape 
the  ennui  of  idleness,  or  to  make  their  lives  useful,  and 
very  many,  aiming  only  to  secure  some  addition  to  a  par- 
tial income  from  other  sources,  seek  a  share  in  the  limited 
occupations  open  to  females.  These  are  willing,  because 
they  can  afford  to  work  for  less  compensation  than  is 
needed  by  those  who  have  nothing  but  their  labor  to  de- 
pend on.  And  often  the  fact  of  their  better  circumstances, 
9 


194  DISTRIBUTION. 

their  better  appearance  and  it  may  be  their  superior  intel- 
ligence secures  for  them  the  preference.  Of  necessity, 
therefore,  excessive  competition  crowds  the  other  class 
more  closely  to  the  wall.  Certainly  it  is  desirable  to 
encourage  in  young  women  a  spirit  of  independence,  and 
an  acquaintance  with  and  a  love  for  useful  occupation. 
Yet  as  things  are,  the  services  of  this  class  come  into  com- 
petition with  those  of  the  more  needy  ones,  and  cause  inci- 
dental hardship. 

Notwithstanding  all  that  has  been  said,  where  a  woman 
by  superior  energy  or  genius,  makes  eminent  achievements, 
her  services  are  appreciated  in  full  measure  according  to 
the  standard  of  men's  work  of  the  same  kind.  This  is  true 
especially  of  women's  work  in  fine  art.  The  female  stars 
in  music  and  the  drama,  such  as  Kellogg  and  Siddons — in 
painting  and  sculpture,  such  as  KosaBonheur  and  Harriet 
Hosmer — in  poetry  and  light  literature,  such  as  Mrs. 
Browning  and  Mrs.  Stowe,  have  no  reason  to  complain 
of  the  remuneration  awarded  by  an  admiring  public  to 
their  productions.  So  too,  occasionally  we  see  a  woman 
managing  extensive  business  with  great  executive  ability. 
In  such  a  case,  the  reward  is  no  whit  short  of  that  won  by 
like  energy  on  the  part  of  the  other  sex.  These  exceptions 
however,  rather  prove  than  controvert  the  rule.  And  with 
the  sole  exception  of  vocal  music,  we  fail  to  find  in  any 
department  of  art  or  business,  women,  reaching  eminences 
BO  high  that  there  are  not  men  still  above  them. 

From  all  these  considerations,  we  reach  the  following 
conclusions  in  answer  to  the  question  with  which  our  dis- 
cussion opened. 

1.  In  the  nature  of  things,  there  is  some  good  reason 
why  the  remuneration  of  women  should  generally  fall  below 
that  of  men  for  similar  services.  Absolute  equality  between 
the  sexes  in  this  respect,  is  not  likely  ever  to  be  attained. 


WOMEN'S  WAGES.  195 

They  who  contend  for  that  extreme  result,  are  fighting 
against  nature's  laws  and  assailing  the  only  safe  founda- 
tions of  civilized  society. 

2.  This  inequality,  as  a  present  matter  of  fact,  is  much 
greater  than  is  either  right  or  reasonable  or  necessary. 
The  distress  that  comes  from  it,  cries  out  therefore,  in  the 
name  of  justice  and  of  philanthropy  for  relief.     Efforts  for 
relief  put  forth  in  the  right  direction,  will  not  be  unavail- 
ing.    They  may  be  prosecuted  with  good  hope  of  success, 
and  deserve  encouragement  and  support  on  all  hands. 

3.  The  chief  aim  of  these  efforts  must  be  to  break  the 
tyranny  of  fashion  and  prejudice  and  mawkish  sentimen- 
talism,  and  to  open  for  women,  free  access  to  all  Jit  occupa- 
tions.    Thus  the  sphere  of  competition  will  be  widened 
and  its  intensity  relieved.     Under  that  tyranny,   the  se- 
verest ban  is  that  imposed  by  women  themselves  on  one 
another.     A  change  of  opinion  in  female  circles,  will  be  a 
change  of  public  opinion.     No  satisfactory  reason  can  be 
given  why  with  women  and  with  men  alike,  honest  work 
well  done  should  not  be  always  respected  and  honored.     No 
great  danger^can  come  from  giving  the  widest  range  of  ex- 
periment for  women  to  try  their  powers.     When  the  bar- 
riers set  up  by  the  false  whims   of   artificial   society  are 
removed,  the  native   instinct  of   the  sex  may   safely  be 
trusted   to  choose  fit   and   congenial  occupations.     Then 
the  average  rewards  of  labor,  even  at  women's  rates,  will 
be  raised  at  least,  to  the  standard  of  general  comfort. 

4.  In  the  quiet  sphere  of  domestic  life,  woman  renders 
to  society  her  noblest,  most  blessed  service.     The  real  worth 
of  that  service  cannot  be  estimated  in  terms  of  current 
money.     Its    legitimate   reward   comes    not   in    separate 
wages   but  in    her   rightful  partnership,   as   a  necessary 
helper,  in   all  that  man,   the   husband,   the  father,  the 
brother,  quickened,   stimulated,   sustained  by  her  genial 
influence  in  the  home,  can  gather  on  the  world's  open 


196  DISTRIBUTION. 

fields  of  struggle.  When  necessity  carries  her  out  to  act 
for  herself  in  those  open  fields,  her  true  mission  will  still 
remain  that  of  a  Helper,  not  a  Principal.  The  outlook  of 
to-day  is  full  of  hope  for  the  success  of  a  Conservative 
Reform,  which  shall  move  on,  safely  balanced  by  a  due 
regard  always  to  that  highest  honor,  to  those  most  sacred 
rights  of  woman  which  centre  in  the  true  unit  of  society, 
the  Home. 


CHAPTER  XV. 

THE  REMUNERATION  OF  CAPITAL. 

CAPITAL,  as  we  have  seen,  is  a  factor,  all-essential  in 
the  production  of  wealth.  The  most  important  forms 
which  it  takes  in  the  process  are  two,  viz.,  buildings,  tools 
and  machinery  to  work  in  and  to  work  with,  and  materials 
to  work  upon.  Labor  and  skill  are  unavailable  till  these 
are  provided.  In  the  process  of  production,  capital  in 
these  forms  is  consumed.  The  materials  are  immediately 
destroyed.  Buildings  and  instruments  slowly  but  surely 
wear  away.  Hence,  the  first  appropriations  from  the  pro- 
ceeds of  industry  must  be  always  to  make  good  this  loss, — 
to  make  necessary  repairs,  to  buy  new  materials  and  thus 
to  replace  the  capital  consumed.  Unless  the  business  is  a 
failure  and  must  cease,  this  provision  must  first  be  made. 
The  compensation  of  labor,  the  reward  of  capital  and  the 
profits  must  be  reckoned  after  that  is  done.  We  here 
simply  recognize  this  replacing  of  capital  as  a  necessity. 
It  forms  no  part  of  the  remuneration  of  capital  which  we 
are  now  to  consider. 

The  Principle  on  which  the  claim  of  Capital 
to  Remuneration  rests,  is  essentially  the  same  as  that 
which  sustains  the  compensation  of  labor.  By  its  defini- 
tion, capital  is  the  fruit  of  past  labor  preserved  by  self- 
denial  to  be  employed  in  further  production.  One's  right 
of  property  in  that  which  he  has  earned  and  saved  is  inde- 
feasible, it  is  precisely  the  same  as  his  right  to  his  own  labor, 
for  his  own  labor  may  have  produced  this  capital,  and  it  is 


198  DISTRIBUTION. 

but  simple  justice  that  if  the  owner  allows  another  to  use  his 
property  instead  of  using  it  himself,  he  should  be  compen- 
sated. No  man  expects  to  put  forth  his  powers  in  present 
labor  without  some  reward.  Why  then,  should  one  be  ex- 
pected to  give  the  use  of  the  fruits  of  his  past  labor  and  self- 
denial  without  reward  ?  The  hope  of  such  reward  is  the 
special  inducement  for  saving.  Suppose  John  Smith  to 
have  health  and  strength  and  skill  as  a  blacksmith,  but  no 
shop,  no  tools,  no  iron.  James  Brown  has,  by  previous 
labor  and  thrift,  become  the  independent  owner  of  a  shop 
and  its  appurtenances,  but  is  broken  in  health  and  unable 
to  work.  Each  is  evidently  helpless  without  that  which 
the  other  can  furnish.  Both  will  derive  advantage  from 
the  union  of  the  two  properties, — the  personal  qualities  on 
the  one  hand,  and  the  accumulated  means  on  the  other, — 
in  other  words,  the  labor  and  the  capital.  This  may  be 
done  in  either  of  two  ways.  Smith  may  hire  Brown  to 
work  in  the  shop,  and  with  his  tools,  and  pay  him  stipu- 
lated wages,  reserving  from  the  proceeds  of  his  labor, 
something  for  himself.  Nobody  can  question  the  rightful 
ness  of  that  course.  Or,  Brown  may  hire  Smith's  shop 
and  tools  for  a  stipulated  rent,  and  after  paying  that,  have 
for  himself  the  surplus  of  all  he  can  earn  by  his  work. 
On  what  ground  can  the  rightfulness  of  this  course  any 
more  be  questioned  ?  The  latter  method  establishes  the 
relation  of  borrower  and  lender,  as  the  former  does  that  of 
employer  and  employe.  It  grows  out  of  a  common  neces- 
sity. It  yields  a  mutual  advantage.  A  division  of  the 
joint  result  may  give  each  the  living  he  needs.  The  one 
lives  by  his  present  labor,  the  other  lives  by  his  past  labor, 
that  is,  on  his  capital.  Is  not  each  an  honest  way  of  living  ? 
Would  it  not  be  a  grievous  wrong  for  either  to  demand 
the  benefit  of  the  other's  possession  without  paying  for  it  ? 
This  simple  case  illustrates  the  whole  matter  in  all  its 
varied  and  complicated  aspects.  The  principle  seems  too 


BENT.  199 

plain  to  need  even  so  much  of  exposition.  But  the  Com- 
munist philosophy,  so  called,  which  denies  the  rights  of 
capital,  is  gaining  some  acceptance  even  in  our  enlightened 
country,  and  its  sophistry  is  best  exposed  by  the  clear 
statement  of  elementary  principles.  Everywhere,  labor 
and  capital  enter  into  a  partnership.  He  who  provides 
the  capital  justly  claims  to  share  with  the  laborer  in  the 
results  of  their  union  ;  and  the  laborer  can  well  afford  to 
pay  for  the  advantage  he  gains. 

It  matters  not  in  what  form  Hie  capital  is  furnished ; 
the  principle  is  the  same.  The  laborer  may,  as  in  the  case 
supposed,  use  the  shop,  tools,  etc.,  of  another  for  which 
he  pays  Rent.  He  may  make  a  formal  loan,  borrowing 
money  with  which  to  purchase  these  things  and  paying 
Interest.  The  capital  may  be  contributed  by  a  hundred 
different  persons,  uniting  in  a  stock-company,  which 
through  its  agents  employs  a  hundred  other  persons  as 
laborers.  It  is  in  this  last  case,  just  as  really  a  partner- 
ship, as  though  each  laborer  made  a  bargain  with  some 
one  capitalist,  but  here  the  compensation  for  the  capital 
comes  in  the  form  of  Dividends.  The  remuneration  of 
capital  thus  appears  in  these  three  forms,  Rent,  Interest, 
Dividends.  We  have  said  that  the  fundamental  principle 
is  the  same  in  all,  yet  each  form  has  some  peculiar  phases 
which  require  a  distinct  presentation. 

Rent,  is  the  compensation  paid  for  the  use  of  capital  in, 
the  form  of  land  and  its  appendages,  commonly  called  Real- 
estate.  Kent  implies  ownership  of  laud.  It  belongs  not 
to  our  science  to  discuss  the  abstract  right  of  property  in 
laud,  or  to  determine  the  basis  of  that  right.  It  is  enough 
here  to  say  that  the  wealth  which  God  has  hidden  in  the 
vegetable  and  mineral  resources  of  the  earth  cannot  be  de- 
veloped without  some  exclusive  possession  and  control  of 
the  land  itself.  So  too,  the  advantages  of  a  particular 


200  DISTKIBUTIOX. 

location,  as  a  place  of  residence  or  of  trade,  can  be  ap- 
propriated only  in  connection  with  a  title  of  posses- 
sion to  that  piece  of  land.  When  appropriated,  land 
must  be  reckoned  as  capital,  partaking  of  the  nature  both 
of  material  to  which  labor  may  be  applied,  and  also  of  an 
instrument  of  labor.  Unless  excluded  by  special  provision, 
the  title  to  the  land  carries  with  it  all  improvements  and 
permanent  structures  put  upon  it,  the  term  real-estate  in- 
cluding all.  The  use  of  capital  in  this  form,  as  well  as  its 
ownership,  may  be  transferred,  and  rent  is  simply  the 
compensation  paid  for  such  use. 

Several  kinds  of  rent  are  indicated  by  different  names  ; 
the  distinctions  having  originated  mainly  in  the  peculiar 
features  of  the  feudal-system  and  the  laws  of  primogeni- 
ture and  entail  to  which  that  system  gave  rise.  Some  of 
these  may  be  mentioned  in  passing.  A  Rent-charge 
means  a  fixed  sum  paid  annually  as  a  commutation  for 
military  services  or  other  obligations  due  from  the  occu- 
pant of  land  to  its  feudal  proprietor.  Quit-rent  is  a  defi- 
nite reserve,  specified  in  grants  of  land,  by  the  annual 
payment  of  which  the  tenant  is  quieted  or  quit  from  all 
other  services  to  a  feudal  lord.  Metayer-rent  is  an  equal 
division  of  the  actual  products  between  the  cultivator  and 
the  owner  of  the  land.  Rack-rent  is  rent  raised  to  the 
utmost  by  forced  competition.  Cottier-rents  is  a  term  ap- 
plied chiefly  to  the  usage  in  Ireland,  where  sub-tenants 
rent  each  a  cottage  and  an  acre  or  two  of  land  from  the 
small  farmers,  the  amount  of  the  rent  being  ordinarily 
paid  in  labor  at  a  money  valuation.  Ground-rent,  a  mod- 
ern term  applied  mostly  to  city  lots,  is  compensation  paid 
for  the  occupancy  of  the  ground  alone,  the  lease  usually 
providing  for  an  equitable  valuation  of  the  structures 
erected  on  it,  with  a  view  to  their' separate  disposal,  on  the 
termination  of  the  contract. 

In  Great  Britain,  the  influence  of  the  old  feudal  svstem 


RICARDO'S  THEORY.  201 

is  still  felt  in  the  monopoly  of  the  lands  of  the  kingdom 
by  a  few  families  of  the  nobility  and  rich  gentry,  and  in 
many  restrictions  on  the  transfer  of  titles.  There  conse- 
quently, the  problems  of  rent  are  many  and  complicated, 
and  English  writers  on  political  economy  give  large  place 
to  this  topic.  We  need  not  follow  their  extended  and 
elaborate  discussions,  since  they  are  ill  suited  to  the  condi- 
tion of  things  in  our  country. 

The  famous  theory  of  Ricardo,  however,  deserves  a 
brief  notice.  His  work  on  political  economy  is  devoted 
chiefly  to  this  subject,  and  the  theory  he  propounds  has  met 
with  general  acceptance.  Its  leading  idea  is  that  rent  ad- 
vances with  the  progress  of  society  from  the  first  settling 
of  a  country,  when,  on  account  of  the  abundance  of  fertile 
land,  there  will  be  no  rent,  up  to  the  time  when  the  neces- 
sities of  the  growing  population  compel  the  bringing  into 
cultivation,  at  the  expense  of  greatly  increased  labor,  the 
poorest  of  the  land.  The  rent  therefore,  which  any  piece 
of  land  will  yield  is  just  the  difference  between  the  value 
of  its  products  and  the  value  of  the  products  of  the  poorest 
land  in  cultivation.  The  increase  of  population  causes  an 
increase  of  rent,  and  with  the  advancing  rent,  the  cost  of 
food  must  steadily  advance.  So  by  inference,  this  theory 
was  made  to  sustain  the  Malthusian  theory  of  population, 
which  presents  general  starvation  and  wretchedness  as  the 
certain  result  in  a  not  distant  future,  unless  some  restric- 
tions are  laid  on  the  natural  increase  of  population. 

The  elementary  principle  of  this  theory,  that  the  rent 
of  land  for  agricultural  purposes,  must  depend  chiefly  on 
its  productiveness  is  true.  But  the  representation  of  the 
manner  in  which  lands  of  different  grades  are  brought 
under  cultivation  is  ideal  rather  than  real.  The  deduction 
from  the  theory  can  stand  only  on  the  assumption  that 
the  food  of  a  country  must  be  provided  entirely  from  its 
own  soil,  limited  in  extent.  The  repeal  of  the  corn-laws 


202  DISTRIBUTION. 

and  the  adoption  of  the  principle  of  free-trade  have  shown 
that  even  England  has  little  occasion  to  apprehend  the 
sad  consequences  of  the  so-called  Eicardo-Malthusian  sys- 
tem. "When  all  artificial  restrictions  are  removed,  the 
natural  equilibrium  of  supply  and  demand  will  provide 
food  for  a  people,  irrespective  of  the  more  or  less  that  may 
be  raised  within  their  own  territory.  Then  too,  the  same 
law  will  determine  the  value  of  the  products  of  the  land, 
and  rents  will  be  adjusted  accordingly. 

In  our  country,  by  the  constitutions  of  most  of  the 
states,  lands  are  declared  to  be  allodial  and  feudal  tenures 
are  prohibited.  The  property-right  to  all  lauds  rests 
upon  a  title  in  fee- simple,  unencumbered  by  entails  and 
mortmain  holdings.  This  makes  the  ownership  absolute 
and  its  transfer  easy  and  direct,  free  from  burdensome  re- 
strictions. At  the  same  time  powerful  influences  oppose 
the  aggregation  of  great  landed  estates,  and  favor  the 
acquisition  of  such  property,  in  comparatively  small  tracts 
by  the  industrious  and  thrifty  of  all  classes.  Here  there- 
fore, the  principles  of  rent  are  very  simple.  For  agricul- 
tural purposes,  the  rent  of  land  is  determined  mainly  by 
three  considerations. 

1.  Productiveness.  Land  is  the  instrument  by  which 
the  farmer  produces  the  various  vegetable  and  animal  sub- 
stances which  he  offers  in  exchange. 

Like  any  other  valuable  instrument,  it  of  course,  com- 
mands a  price  according  to  its  productiveness.  He  who 
hired  a  loom,  would  pay  more  for  a  loom  with  which  he 
could  weave  twenty  yards  a  day,  than  for  one  Avith  which 
he  could  weave  but  ten  yards  a  day.  The  case  is  the  same 
Avitli  land.  But  the  productiveness  of  land  depends  on 
two  circumstances,  viz.,  its  Fertility  and  its  Situation 
with  respect  to  a  market. 

a.  Fertility.     We  all  know  that  the  productiveness  of 


CONSIDERATIONS   AFFECTING    RENT.  203 

different  soils  is  very  diverse.  Some  soils  will  produce 
thirty,  or  forty,  or  fifty  bushels  of  wheat  to  the  acre,  while 
others  will  produce,  at  the  cost  of  more  labor,  not  more 
than  ten  or  fifteen  bushels  to  the  acre.  Some  soils  will 
produce  the  most  valuable  vegetables;  and  others,  only 
the  most  common,  and  comparatively  worthless.  Some 
soils  will  produce  no  wheat  whatever  ;  and  others  will, 
without  manuring,  produce  a  luxuriant  crop  every  year. 
Some,  wholly  unfit  for  tillage,  can  be  used  only  for  grazing  ; 
and  even  when  thus  employed,  yield  to  their  stinted  flocks 
but  a  meagre  subsistence.  Hence,  we  see  a  reason  for  a 
great  diversity  in  the  price  of  land.  And  we  see  at  once, 
that  a  farmer  might  more  profitably  pay  a  rent  for  one 
farm,  than  occupy  another  farm  for  nothing. 

b.  Situation.  The  products  of  the  farmer  are  all 
bulky,  and  of  course,  acquire  a  very  considerable  addition 
to  their  cost  by  transportation.  Hence,  if  A  raise  wheat 
within  a  mile  of  a  market  town,  and  sell  it  for  one  dollar 
a  bushel,  and  B  live  one  hundred  miles  off,  and  bring  his 
wheat  to  the  same  market,  he  must  sell  it  at  the  same 
price.  The  merchant  who  buys  wheat  can  give  no  more 
than  the  market  price  for  wheat,  whether  it  has  been 
raised  near  or  far  off.  It  is  no  more  valuable  to  him  for 
having  been  brought  one  hundred  miles.  If  now,  the  price 
of  bringing  a  bushel  of  wheat  one  hundred  miles  be  fifty 
cents,  B  actually  receives  but  fifty  cents  a  bushel  for  his 
wheat,  while  A  receives  a  dollar.  If  the  farms  of  both 
were  of  equal  fertility,  that  is,  if  both  produced  twenty 
bushels  to  the  acre,  the  farm  of  B,  would  be  only  half  as 
productive  as  that  of  A  ;  that  is,  he  would  receive  only 
ten  dollars  per  acre,  while  A  received  twenty  dollars. 
This  amount  of  difference  in  situation,  would  be  the  same 
as  a  difference  of  one-half  in  fertility,  or  actual  produc- 
tiveness. 

Hence,  fertility  being  the  same,  productiveness  will  be 


204  DISTRIBUTION". 

as  situation  ;  and  situation  being  the  same,  productive- 
ness will  be  as  fertility.  And  we  see  that  these  circum- 
stances will  always,  when  opposed,  counterbalance  each 
other  ;  that  is,  land  at  such  a  distance  from  the  market 
that  it  costs  one  half  the  price  of  products  to  transport 
them,  will  be  of  the  same  value,  or  actual  productiveness, 
as  land  of  half  its  fertility,  contiguous  to  a  market. 
And  hence,  in  estimating  the  productiveness  of  land,  these 
circumstances  are  always  to  be  considered  together.  And 
we  see  that  land  of  the  greatest  fertility  may  be  so  far  from 
a  market,  that  the  cost  of  transportation  will  leave  a  profit 
insufficient  to  repay  the  cost  of  cultivation.  In  such  a 
case,  such  land  will  be  worth  nothing. 

TJie  highest  degree  of  productiveness  is  realized  when 
these  two  circumstances  are  combined.  Fertile  lands  near 
to  a  market  always  command  a  high  rent.  Internal  im- 
provements which  diminish  the  cost  of  transportation  have 
the  effect  of  thus  combining  fertility  and  situation.  This 
has  been  one  important  cause  of  rapidly  enhancing  the 
value  of  agricultural  lands  in  the  valley  of  the  Mississippi, 
where  distance  from  the  sea-board  and  the  consequent  ex- 
penses of  transporting  their  produce  balanced  all  the 
advantages  of  their  superior  fertility,  until  steam  naviga- 
tion and  railways  were  extended  thither. 

In  the  settlement  of  a  new  country,  another  considera- 
tion has  weight  in  the  choice  of  lands  first  occupied.  The 
most  fertile  lands  and  those  most  favorably  situated  may 
require  great  labor  to  bring  them  under  cultivation,  and 
hence  inferior  lands  may  be  first  selected.  This  however 
is  only  another  aspect  of  the  same  principle.  For  in  any 
branch  of  industry,  our  estimate  of  productiveness  must 
take  into  account  the  cost  of  labor  necessary  to  secure  the 
product.  No  agricultural  lands  will  command  a  rent, 
whose  crops  do  not  yield  a  surplus  above  what  is  necessary 
to  support  the  laborer.  While  the  process  of  clearing 


CONSIDERATIONS   AFFECTING    RENT.  205 

heavily  timbered  land  is  going  on,  the  crops  will  hardly 
keep  the  laborer  alive,  though  the  crops  of  subsequent 
years  may  yield  a  full  compensation  for  that  first  cost.  As 
these  later  returns  come  in,  such  lands  yield  rent  which 
steadily  increases  until  the  full  measure  of  its  productive- 
ness is  reached. 

2.  The  Growth  of  Population  and  its  concentration  in 
neiu  centres.  This  means  only  that  whatever  increases  the 
demand  for  agricultural  products,  or  in  any  way  improves 
the  market  for  them,  enhances  the  value  of  the  lands  and 
warrants  the  payment  of  increased  rents.  The  natural 
growth  of  a  population  devoted  chiefly  to  agriculture  mul- 
tiplies various  wants  which  can  be  met  only  by  some  forms 
of  mechanical  industry  and  mercantile  enterprise.  Those 
who  are  thus  employed,  by  necessity  collect  together  into 
towns  and  villages.  Thus  a  large  population  is  collected, 
which  raises  nothing  from  the  earth,  and  their  wants  must 
be  supplied  by  the  agriculturists  in  their  neighborhood. 
Hence,  immediate  markets  for  produce  are  created  in 
every  district ;  that  is,  although  the  farmer  cannot  remove 
his  farm  nearer  to  market,  the  market  has  removed  nearer 
to  him,  and  the  diminution  of  distance  has  increased  the 
productiveness  of  his  farm,  as  much  as  though  its  fertility 
had  been  increased,  or  it  had  been  removed  to  the  sea- 
board. Thus,  within  fifty  years  after  it  was  occupied  by 
fanning  emigrants,  Western  New  York  was  studded  with 
villages,  many  of  which  soon  grew  into  large  cities.  The 
same  thing  has  been  illustrated  on  a  still  larger  scale  in  the 
rapid  increase  of  population  and  wealth  through  all  the 
western  states.  With  all  this  development,  agricultural 
lands  have  increased  in  value,  and  command  rent  accord- 
ing to  their  proximity  to  the  new  markets  thus  formed. 

The  development  and  use  of  water-powers  and  other 
facilities  for  manufacturing  has  the  same  effect.  Such 


206  DISTRIBUTION. 

enterprise  brings  in  a  rapid  increase  of  population  by  im- 
migration, who  must  be.  to  a  considerable  extent,  fed  by 
the  products  of  land  in  the  vicinity.  Agricultural  and 
manufacturing  industry  have  thus  a  most  intimate  relation 
to  each  other,  and  the  free  growth  of  both  in  near  prox- 
imity, promotes  the  most  general  and  genuine  thrift.  By 
the  forming  of  such  near  markets,  lands  of  inferior  fertility 
may  come  to  bear  a  considerable  rent,  because  every  such 
community  requires  large  supplies  of  vegetable  products 
which  do  not  well  bear  long  transportation.  The  develop- 
ment of  manufacturing  industry  in  New  England  has 
thus  kept  up  the  value  of  her  poor  farming  lands  in  spite 
of  the  competition  of  the  richer  soils  of  the  west,  which 
through  facilities  for  transportation  have  sent  on  immense 
quantities  of  produce.  It  will  not  pay  for  the  New  Eng- 
land farmers  to  raise  wheat,  but  for  potatoes  and  other 
vegetables,  bulky  and  perishable,  needed  in  the  manufac- 
turing towns  close  by,  they  have  a  market  of  their  own, 
which  sustains  the  value  of  their  lands. 

3.  Rents  are  affected  by  some  Incidental  Circum- 
stances. 

a.  Natural  Beauty  of  Situation  adds  to  the  value 
of  a  farm.  Of  two  farms  equally  productive,  many 
men  would  give  a  decided  preference  to  that  which  com- 
manded a  view  of  the  richest  and  most  beautiful  prospect, 
or  of  which  the  trees  and  shrubbery  were  so  arranged,  as 
to  give  the  greatest  pleasure  to  the  beholder.  For  this 
preference,  most  men  would  be  willing  to  pay  an  additional 
price.  This  additional  price  will  increase  with  the  wealth 
and  the  improving  tastes  of  the  community.  This  is  a 
circumstance  which  should  always  be  borne  in  mind  by 
the  occupiers  and  owners  of  land.  It  costs  but  little  more 
labor  to  lay  out  an  orchard  regularly  and  beautifully,  than 
to  lay  it  out  irregularly  and  clumsily.  It  costs  nothing  to 


CONSIDERATIONS   AFFECTING    RENT.  20? 

let  a  tree  stand  where  it  adds  beauty  to  a  prospect,  and 
it  costs  very  little  to  plant  one,  where  it  will  have  the 
same  effect.  A  neat  and  convenient  house  consumes 
neither  more  lumber  nor  nails,  nor  labor,  than  a  slovenly 
and  inconvenient  one.  And  yet  on  these  differences,  very 
much  of  the  value  of  a  farm  depends. 

b.  The  value  of  land  depends  much  on  the  Intellectual 
and  Moral  Character  of  the  Neighborhood. 

Of  two  farms  of  equal  productiveness,  but  in  very  dis- 
similar moral  and  intellectual  communities,  almost  every 
one  would  prefer  that  which,  in  these  respects,  possessed 
the  greater  advantages.  A  man  who  has  in  any  degree 
cultivated  his  own  intellect,  prefers  the  society  of  those 
whose  intellects  are  also  cultivated.  A  parent  would 
always  prefer  a  neighborhood  in  which  his  children  would 
receive  the  advantages  of  education.  A  man  who  had 
been  accustomed  to  religious  observances,  would  choose  to 
reside  where  he  could  enjoy  the  benefits  of  religious  in- 
struction. And  every  man,  let  his  dispositions  be  what 
thjey  may,  will  choose  to  live  in  a  neighborhood,  in  which 
the  moral  character  of  the  people  is  a  protection  from  dis- 
honesty and  robbery,  and  where  his  children  will  be,  as 
little  as  possible,  exposed  to  the  contaminations  of  vice. 
It  is  manifest  that  each  of  these  considerations  would 
form  aground  of  preference,  for  one  situation  over  another, 
and  for  this  preference,  every  reasonable  man  would  be 
willing  to  pay.  Were  two  farms  thus  differently  situated, 
there  would  be  many  more  buyers  for  the  one  than  for  the 
other,  and  the  advantage  would  all  be  on  the  side  of  the 
most  intelligent  and  moral  community. 

Hence  we  see  that,  besides  the  advantages  which  intel- 
ligence and  virtue  confer  upon  the  character  of  a  people, 
there  is  also  an  additional  advantage  in  the  increased  value 
of  property  which  they  produce.  It  may  be  fairly  ques- 
tioned, whether  this,  of  itself,  be  not  sufficient  to  repay  the 


208  DISTRIBUTION. 

whole  expense  of  literary  and  religious  institutions.  There 
are  towns  in  New  England  in  which,  in  a  few  years,  the 
price  of  real  estate  was  doubled,  for  no  other  assigna- 
ble reason,  than  that  of  the  literary  and  moral  advantages 
which  they  hold  out  to  residents.  This  mode  of  increas- 
ing the  value  of  property,  is  deserving  of  more  attention 
than  it  has  generally  received. 

c.  Improvements  put  upon  the  land  are  also  to  be 
taken  into  account.  Under  this  term  are  included  drain- 
age and  fertilizers  applied  to  the  soil,  the  benefit  of  which 
runs  through  a  series  of  years  ;  also  fences,  barns  and  other 
outhouses  and  a  residence  for  the  family.  These  things 
nre  indispensable  to  successful  agriculture  and  every  addi- 
tion increases  the  utility  and  desirableness  of  the  land. 
The  unthrifty  appearance  of  a  farm  whose  improvements 
are  neglected  and  run  down,  is  in  itself  repulsive,  enough 
so,  often,  to  overbear  other  considerations.  One  is  hardly 
willing  to  stop  and  inquire  about  the  intrinsic  fertility  of 
such  a  piece  of  land.  He  will  fix  his  choice  rather  on  even 
wild  land,  untouched,  at  least  unmarred  by  the  hand  of 
man.  ' 

It  is  to  be  observed  however,  that  where  the  improve- 
ments are  in  excellent  condition,  rarely  is  the  value  of  the 
land,  indicated  by  either  rent  or  purchase-price,  increased 
in  proportion  to  the  expenditures  laid  out  on  these  im- 
provements. The  reason  of  this  is  that,  with  respect  to 
some  of  these  outlays,  the  benefit  is  hidden,  not  apparent 
to  the  eye,  as  in  the  case  of  drainage  and  fertilizers ; 
respecting  others,  as  of  the  barn  and  the  dwelling,  every 
man  has  his  own  taste,  and  what  may  have  been  of  great 
interest  to  the  original  proprietor,  may  fail  to  be  apprecia- 
ted by  a  purchaser  or  tenant.  Often  a  dwelling  house 
is  erected  costing  as  much  as  the  whole  farm  without  it  is 
worth,  thus  doubling  the  capital  invested.  But  all  this 
will  add  nothing  to  the  actual  products,  the  matter  of 


RENT  OF   MINING   LANDS.  209 

chief  consequence  in  the  mind  of  one  proposing  to  buy  or 
rent  the  place. 

It  must  be  added  that  in  this  country,  almost  invaria- 
bly, rented  farms  are  rapidly  deteriorated  with  respect  to 
both  fertility  and  improvements.  The  temporary  tenant 
seeks  to  realize  the  largest  profits  from  immediate  harvests, 
having  no  interest  in  the  continued  productiveness  of  the 
land.  Hence,  unless  he  is  occupying  the  farm  on  long  lease, 
he  will  not  spend  much  in  enriching  the  soil  or  in  keeping 
buildings,  etc.,  in  repair.  To  avoid  this  deterioration,  the 
terms  of  the  lease  are  sometimes  so  drawn  as  to  require 
certain  outlays  annually,  to  keep  up  the  land  and  its  ap- 
pendages. 

For  Mining  Lands  rent  is  determined  almost  entirely 
by  productiveness,  real  or  prospective.  On  the  first  dis- 
covery of  mineral  treasures,  the  value  of  the  land  in  which 
they  are  found,  is  at  once  increased  according  to  the  profit 
anticipated  from  working  them  out. 

Suppose  a  farm  to  be  worth  the  ordinary  price  of  land  ; 
and  the  owner  discovers  on  it  a  bed  of  iron  ore  which, 
after  deducting  the  necessary  expenses  of  working  it,  and 
paying  the  labor  and  skill  necessary  to  the  operation,  will 
yield  one  thousand  dollars  a  year.  The  farm  or  the  land 
necessary  for  the  mining  operations  will  rent  for  one  thou- 
sand dollars  a  year,  or  will  sell  for  such  a  sum  as  will  yield, 
at  the  ordinary  rate,  one  thousand  dollars  as  interest.  In 
this  case  it  is  manifest  that  the  original  owner  of  the  prop- 
erty will  be  a  gainer  by  the  discovery,  to  the  full  amount  of 
the  increase  in  the  price  of  his  land.  But  here  the  peculiar 
gain  ceases.  To  other  holders  who  may  come  after  him, 
it  is  merely  an  investment  of  the  same  nature  as  any  other 
investment,  and  will  yield  no  more  than  the  ordinary  rate 
of  profit. 

The  case  is  the  same  with  a  copper,  a  silver,  or  a  gold 
mine.  The  owner  of  the  land  at  the  time  of  the  discovery, 


210  DISTRIBUTION*. 

becomes  greatly  enriched  in  consequence  of  this  new  pro- 
duct, which  may  be  derived  from  his  property.  But  after 
this  rise,  when  a  new  purchaser  comes  into  possession,  the 
peculiarity  of  the  gain  ceases.  A  rich  gold  mine  will  rent 
or  will  sell  for  more  than  a  poor  one,  and  its  price  or  its 
rent,  will  be  in  exact  proportion  to  its  productiveness,  just 
as  a  farm,  a  mill  privilege,  or  any  other  property.  It  is  a 
somewhat  remarkable  fact,  that  mines  of  the  precious 
metals  are  in  general,  singularly  unprofitable,  after  they 
have  passed  out  of  the  hands  of  the  original  owners.  It 
has  grown  into  a  proverb  in  South  America,  that  if  a  man 
own  a  copper  mine  he  will  grow  rich,  if  he  own  a  silver 
mine  he  will  gain  nothing,  but  if  he  own  a  gold  mine  he 
will  certainly  be  ruined.  The  fact,  however,  may  be  easily 
accounted  for.  The  imaginations  of  men  are  always 
strongly  excited  by  the  contemplation  of  the  precious  metals, 
and  it  is  rare  that  anything  but  experience  can  teach 
them,  that  they  may  buy  gold  too  dear.  Hence,  they  do 
not  compute  the  chances  of  profit  in  the  production  of 
gold,  as  coolly  as  they  do  in  any  other  case.  But  the  pro- 
duction of  gold  is  governed  by  as  fixed  laws  as  the  produc- 
tion of  wheat.  Gold  cannot,  any  more  than  wheat,  be 
produced  by  an  effort  of  the  imagination.  It  is  the  result 
of  labor  and  skill  and  expense.  And  if  these  be  greater 
than  the  revenue,  a  man  will  as  assuredly  be  ruined  by 
producing  gold,  as  by  conducting  any  other  unprofitable 
business,  his  imagination  to  the  contrary  notwithstanding. 

3  O  */  O 

In  cities,  where  population  is  concentrated  within  nar- 
row limits,  rents  for  lots  and  buildings  are  determined 
almost  entirely  by  location,  with  respect  to  facilities  for 
business,  the  social  character  of  the  neighborhood,  and  the 
freaks  of  f  ash  ion.  A  man  needs  a  house  which  will  furnish 
the  necessary  conveniences  for  his  family.  lie  also  wishes 
one  within  a  convenient  distance  from  his  place  of  employ- 


BENT   OF   CITY   LOTS.  211 

ment.  The  further  his  dwelling  is  removed  from  his  store 
or  his  counting-room,  the  longer  time  is  occupied  in  pass- 
ing from  the  one  to  the  other,  and  the  less  are  the  conve- 
niences of  his  residence.  Hence,  he  will  be  willing  to  pay 
for  the  choice,  and  thus  the  price  of  land  gradually  di- 
minishes from  the  centre  to  the  circumference  of  a  thickly 
settled  town.  Often  also,  he  is  willing  to  pay  an  extra 
price  for  a  residence  in  a  respectable,  or  fashionable  quar- 
ter of  the  city. 

In  a  place  of  great  commercial  activity,  another  class  of 
buildings  is  needed  for  the  transaction  of  business.  Where 
many  exchanges  are  to  be  made  in  the  course  of  a  few 
hours  every  day,  it  is  of  importance  that  the  exchanges 
should  be  as  near  together  as  possible.  And  where  a  large 
number  of  strangers  is.  daily  collected  for  the  sake  of  mak- 
ing purchases,  it  is  important  to  the  seller  to  be  so  situa- 
ted as  to  be  in  their  immediate  vicinity.  A  merchant 
whose  store  is  in  the  centre  of  business,  can  easily  sell  ten 
times  as  much  in  a  day  as  one  who  is  half  a  mile  off  from 
the  centre.  Hence,  he  is  able  from  the  mere  fact  of  differ- 
ence in  situation,  to  realize  a  much  greater  annual  profit 
in  the  one  place  than  in  the  other.  For  this  difference 
of  productiveness,  he  will  be  willing  to  pay  a  price  ;  and 
hence,  in  large  cities,  the  most  central  situations,  or,  as 
they  are  called,  the  best  stands  for  business  command  a 
very  high  rent,  and  a  corresponding  price.  A  few  square 
.feet  of  land  in  the  centre  of  the  city  of  New  York,  will 
sell  for  more  than  many  acres  of  the  most  productive  soil 
in  any  part  of  the  Union.  And  as  the  price  of  land  in 
such  cases,  is  owing  entirely  to  the  demand  for  the  pur- 
poses of  facilitating  trade,  it  can  only  rise  with  the  increas- 
ing prosperity  of  the  place.  Hence,  the  rise  or  fall  of  real 
estate  in  any  town,  if  it  be  truly  a  rise  in  value,  and  not  a 
rise  from  speculation,  is  one  of  the  surest  indications  of  its 
mercantile  prosperity,  or  of  the  reverse. 


212  DISTRIBUTION". 

With  the  growth  of  cities,  the  centres  of  business,  are 
subject  to  change  from  time  to  time,  occasioned  sometimes 
by  the  need  of  enlarged  space,  often  by  the  mere  whims  of 
fancy  or  bold  speculation.  Forty  years  ago,  most  of  the 
jobbing  business  in  New  York  was  done  in  Pearl  Street, 
and  property  on  that  street  commanded  the  best  rents  in 
the  city.  In  course  of  time,  that  branch  of  business  was 
transferred  to  another  quarter,  and  Pearl  Street  stores  to- 
day, rent  for  a  small  fraction  of  their  former  rates.  The 
bold  speculation  of  one  man  had  the  effect  to  transfer  the 
fashionable  retail  business  of  Chicago,  from  Lake  Street  to 
State  Street  with  a  corresponding  revolution  in  rent.  Par- 
ticular branches  of  business  are  apt  to  concentrate,  each  in 
its  own  part  of  a  city,  and  often  for  reasons  which  nobody 
can  explain,  and  in  spite  of  great  inconveniences.  Thus 
more  or  less  of  uncertainty  is  attached  to  city  property 
rented  for  business,  and  this  fact  must  be  considered  when 
capital  is  invested  in  that  way. 

The  remuneration  of  capital  in  the  form  of  real-estate 
is,  except  in  the  favorite  locations  of  great  cities,  generally 
less  than  the  average  rate  of  profits  from  business.  We 
may  name  several  reasons  for  this  difference. 

1.  Property  in  land  is  considered  more  secure  than  any 
other  property.     The  principal  may   be  considered   inde- 
structible.    Hence,  it  is  the  safest  of  all  investments,  and 
nothing  is  paid  for  the  risk. 

2.  The  title  to  lands  can  be  more  definitely  secured  than 
that  of   any  other  property.     The   legal   instruments  by 
whicli  it  is  secured  to  the  individuals,  are  a  matter  of  pub- 
lic record.     The  boundaries  of  land  can  be.  and  commonly 
are,  ascertained  with  entire  precision.     The  land  itself  can 
not  be  removed.     Hence,  the  ownership  of  it  can  be  always 
ascertained  and  conveyed  to  posterity. 

3.  Men  generally  derive  some  influence  and  considera- 
tion from  the  ownership  of  land,  which  they  do  not  derive 


RENT   LESS    THAN   ORDINARY   INTEREST.  213 

from  any  other  possessions.  Formerly,  the  right  of  suf- 
frage was  restricted  to  landholders.  The  existence  of  this 
rule  shows  the  degree  of  consequence  which  attached  to 
this  sort  of  possession.  And  the  fact  that  it  has  so  fre- 
quently existed,  while  the  contrary  rule  has  never  existed, 
shows  the  general  tendency  upon  the  subject. 

4.  There  seems  to  be  in  the  human  face  a  strong  dispo- 
sition to  become  the  owners  of  land,  and  a  natural  love  for 
the   pursuit  of  agriculture.     Men  of  all  professions  look 
forward  to  some  period  of  life,  in  which,  relieved  from  the 
toils  of  business,  they  may   retire  to  the  quiet   country. 
To  whatever  extent  this  disposition  exists,  it  of  course  tends 
to  raise  the  price  of  land  above  that  of  other  property, 
paying  the  same  rate  of  profit.     If  a  man  receive  a  part  of 
his  remuneration  in  pleasure,  he  will  be  content  to  receive 
less  in  the  form  of  money. 

5.  The  natural  progress  of  society  tends  to  increase  the 
value  of  landed  property.     This  has  been  already  illustrated 
in  general,  in  the  remarks  which  have  been  made  upon 
rent.     And  it  must  be  evident  that,  land  remaining  the 
same,  and  the  population  continually  increasing,  the  de- 
mand for  land  must  continually  increase.     And,  besides 
this,  the  progress  of  society  creates  not  only  a  more  exten- 
sive demand  for  land,  but>  a  much  greater  variety  of  de- 
mands.    As  such  is  the  tendency,  men  are  willing  to  hold 
land  at  a  less  interest  than  other  property,  in  the  hope 
that  the  rise  of  price  at  some  future  time,  will  compensate 
for  their  present  loss.     Thus  men  frequently  invest  money 
in  wild  lands,  expecting  to  reap  no  profit  from  them  for 
many  years,  but  calculating  upon  a  rise  of  price  at  some 
time  or  other,  which  shall  abundantly  repay  both  princi- 
pal and  interest. 

Property  in  land  cannot  be  run  away  with,  nor  destroyed 
nor  fraudulently  disposed  of.  Meantime,  while  society  is 
advancing,  its  bottom-value  steadily  increases.  In  cases 


214  DISTKIBUTIOX. 

not  a  few,  we  have  seen  a  small  capital,  in  this  way  grow 
into  a  fortune.  For  this  reason,  an  owner  of  city-lots  is 
willing  for  a  very  moderate  ground-rent,  to  grant  others 
the  privilege  of  building  on  his  land,  since  he  runs  no  risk 
and  has  the  benefit  of  increased  value  at  the  end  of  the 
lease.  The  only  drawback  is  in  the  liability  to  excessive 
taxation  by  corrupt  "rings"  in  city-governments. 


CHAPTER  XVI. 

INTEREST. 

Interest  is  the  compensation  paid  for  the  use  of  money 
borrowed.  The  most  convenient  form  of  capital  to  be 
loaned,  for  both  lender  and  borrower,  is  money.  Loans 
are  therefore  most  commonly  made  in  money.  Interest  is 
always  reckoned  at  a  certain  per  cent  of  a  defined  sum  of 
money,  which  is  called  the  principal.  The  percentage 
agreed  on  is  called  the  rate,  and  is  usually  stated  as  the 
rate  per  annum,  though  often  payable  at  shorter  intervals 
than  a  year.  In  cases  where  other  kinds  of  property  are 
transferred,  while  payment  is  deferred,  an  estimate  is  com- 
monly made  of  the  value  in  money,  and  interest  is  charged 
accordingly  on  the  deferred  payment,  at  the  current  rate. 
When  credit  is  extended  in  any  way  beyond  a  limited 
time,  the  value  involved  is  set  down  in  terms  of  money, 
and  interest  on  the  debt  is  reckoned  at  some  rate  agreed 
on  by  the  parties.  Thus  one  may  buy  land  for  a  site,  and 
have  a  building  erected  on  it,  and  purchase  a  steam-engine 
and  machinery  for  a  mill,  and  cotton  to  be  worked  up  in 
the  mill,  and  at  each  step  give  his  note,  for  a  part  of  the 
value,  to  be  paid  at  a  certain  date,  with  interest.  Or,  in- 
stead of  doing  this,  he  may  borrow  of  a  friend  the  money 
which  will  meet  his  deficiency,  giving  his  note  for  the 
whole  on  interest  ;  and  then  set  up  his  establishment  com- 
plete by  purchases  made  for  cash.  The  transactions  are 
essentially  the  same.  The  land,  the  mill,  the  engine  and 
the  cotton  are  what  he  wants,  and  what  he  actually  bor- 
rows and  uses  as  a  part  of  the  capital  of  his  business.  In 


216  DISTRIBUTION-. 

one  Avay  or  the  other  he  becomes  owner  of  the  property, 
but  debtor  to  some  party  for  its  value,  and  since  it  is  con- 
templated that  the  debt  will  be  paid  in  money,  it  is  essen- 
tially the  same  as  if  the  credit  were  given  in  the  form  of 
a  money-loan. 

Hence,  interest  is  commonly  called  the  price  for  money. 
It  is  evident,  however,  that  it  is  not  the  money,  but  the 
capital  which  is  wanted  ;  because  as  soon  as  the  man 
obtains  the  money  he  at  once  exchanges  it  for  capital. 
This,  therefore  should  always  be  borne  in  mind,  that  when 
we  speak  of  the  price  of  money,  we  mean  the  price  of 
capital,  which  the  money  represents  and  for  which  it  is 
always  exchanged.  It  is  evident  that  the  laborer  may 
derive  very  great  benefit  from  the  loan  of  money,  that  is, 
of  capital.  He  is  thus  enabled  to  employ  advantageously 
all  his  skill ;  and  thus  a  loan  for  a  few  years  is  very  fre- 
quently the  commencement  of  a  fortune.  Hence  we  see 
how  very  absurd  is  the  prejudice  so  commonly  excited 
against  money-lenders  and  money-lending  institutions. 
Were  there  no  money-lenders,  there  could  be  no  money- 
borrowers  ;  and  were  there  no  money- borrowers,  the  indus- 
trious artisan  would  surely  be  the  greatest  sufferer.  It  is 
not  denied  that  the  money-lender  loans  for  his  own  advan- 
tage. But  is  it  any  more  odious  for  one  man  to  lend  for 
his  own  advantage,  than  for  another  man  to  borrow  for  his 
own  advantage  ?  It  is  not  pleaded  that  the  one,  any  more 
than  the  other,  is  benevolent.  This  is  quite  another  ques- 
tion. All.  that  is  pleaded  is,  that  both,  in  so  far  as  the 
things  themselves  are  concerned,  are  equally  honest  and 
honorable.  In  both  cases  the  man  benefits  himself  while 
he  benefits  others  ;  and  this  is  all  that  can  be  said  in  favor 
of  any  other  exchange.  It  is  not  of  course  denied,  that 
the  lender  may  be  oppressive,  tyrannical  and  avaricious  ; 
nor  that  the  borrower  may  be  fraudulent,  indolent,  and  prof- 
ligate. But  this  does  not  affect  the  nature  of  the  transuo- 


INTEREST.  217 

tion  per  se.  We  here  speak  of  the  thing  itself,  and  not  of 
the  manner  in  which  either  party  may  act,  in  consequence 
of  or  in  connection  with  it. 

The  term  "  interest"  is  a  Latin  verb  in  the  impersonal 
form,  and  means  it  is  of  advantage.  Kecognizing  the  nat- 
ural and  necessary  partnership  of  capital  and  labor  in  pro- 
ducing wealth,  the  term  implies  always  a  mutual  advan- 
tage to  borrower  and  lender.  This  interest,  or  mutual 
advantage  marks  the  prime-  difference  between  a  loan  and 
a  gift.  It  is  therefore,  altogether  equitable  that  capital 
loaned,  should  be  paid  for.  Interest  is  no  extortion,  and 
no  unreasonable  demand.  It  is  for  the  advantage  of  the 
skilful  laborer  to  borrow  at  a  reasonable  interest,  as  much 
as  it  is  for  the  advantage  of  the  capitalist  to  loan  ;  and  it 
is  as  much  for  the  advantage  of  the  laborer  as  the  capital- 
ist, to  enter  into  that  partnership,  by  which  they  share  the 
profits  of  the  operation  between  them.  It  is  by  reason  of 
this  partnership,  that  the  laborer  receives  the  wages  of 
skill,  instead  of  the  wages  of  mere  physical  force  ;  and  the 
capitalist  is  able  to  employ  all  his  capital  in  production, 
instead  of  employing  only  that  portion  of  it  which  he  could 
employ  with  simply  his  own  personal  industry  and  skill. 

When  money  is  borrowed  to  provide  for  the  immediate 
support  of  an  individual  or  a  family,  or  for  some  present 
gratification,  the  property  which  it  represents  is  consumed 
at  once  without  returns  of  added  wealth  ;  but  the  loan  is 
made  in  some  anticipation  of  means  to  be  realized  from 
labor  or  other  sources  at  a  future  day,  and  the  considera- 
tion is  even  then,  a  supposed  advantage  to  the  borrower  as 
well  as  to  the  lender. 

Loans  made  to  an  extravagant  spendthrift  who  has 
property,  simply  anticipate  the  avails  of  that  property,  to 
be  sold  at  a  future  day.  On  the  side  of  the  borrower, 
present  indulgence  is  the  only  advantage  ;  if  there  is  no 
property  to  secure  the  loan,  it  is  to  the  lender,  all  the  same 
10 


218  DISTRIBUTION. 

as  money  thrown  away.  When  a  loan  is  asked  to  relieve 
the  immediate  needs  of  one  reduced  to  poverty,  the  appeal 
is  to  one's  benevolence  rather  than  to  his  interest.  If  the 
favor  is  granted,  though  for  form's  sake  or  to  relieve  the 
sensitive  feelings  of  the  applicant,  a  promise  to  pay  with 
interest  may  be  accepted,  it  is  really  an  act  of  charity,  and 
may  as  well  be  so  accounted. 

The  leading  Considerations  -which  determine 
the  Rate  of  interest,  are  four,  viz.,  Risk,  Convenience 
of  Investment,  Productiveness  of  Capital,  and  the  Ratio 
between  Supply  and  Demand  of  Capital. 

1.  Risk.  A  loan  is  made  on  the  promise  of  future  pay- 
ment. There  is  always  a  risk  that  the  promise  may  fail. 
The  rate  of  interest  must  be  adjusted  to  the  degree  of  the 
risk.  He  who  would  loan  to  one  man  at  six  per  cent  when 
he  was  sure  of  being  repaid,  surely  Avould  not  loan  to 
another  man  at  the  same  rate,  when  there  were  fifty  chan- 
ces in  a  hundred  that  he  would  lose  both  principal  and 
interest.  At  any  rate  he  who  did  so,  would  very  soon  cease 
loaning  altogether. 

This  risk  depends  upon  several  circumstances. 

a.  There  is  a  difference  in  risk,  arising  from  the  differ- 
ent modes  of  employing  capital.  For  instance,  property  at 
sea  is  more  liable  to  destruction  than  property  on  land. 
Hence,  the  ancient  Athenians  made  a  difference  between 
land  and  marine  interest.  The  former  was  at  twelve,  and 
the  latter  as  high  as  sixty  per  cent  per  annum.  Property 
in  merchandise  is  more  liable  to  be  destroyed,  than  prop- 
erty in  houses  ;  property  in  houses  than  property  in  farms. 
A  house  in  the  country  is  safer  than  a  house  in  town  ; 
and  a  stone  house  is  safer  than  a  wooden  house.  Property 
employed  in  the  manufacture  of  cotton,  is  less  liable  to  be 
destroyed  than  property  employed  in  the  manufacture  of 


INTEREST   AFFECTED   BY   RISK.  219 

gunpowder.  Now  when  a  capitalist  makes  a  loan  to  be 
invested  in  some  one  of  the  above  forms  of  capital,  and  his 
only  security  for  payment  consists  in  his  hold  upon  the 
property  in  which  it  is  invested,  it  is  evident  that  his 
risk,  other  things  being  equal,  will  depend  upon  the  safety 
of  that  property.  Hence,  it  is  reasonable  that  his  remun- 
eration for  risk  should  correspond  with  the  greatness  of 
that  risk. 

b.  The  second  circumstance  which  enters  into  risk,  is 
the  personal  character  of  the  borrower.  This  is  made  up 
of  industry,  skill,  knowledge  of  business,  pecuniary  ability, 
and  moral  character.  When  these  have  not  been  tested, 
or  where,  having  been  tested,  they  have  been  found  insuffi- 
cient to  the  safe  conduct  of  business,  there  will  be  a  corre- 
sponding indisposition  to  loan  to  a  man  of  such  character, 
because  every  one  feels  that  there  is  in  this  case,  more  than 
usual  risk.  Hence,  such  a  person  cannot  borrow,  unless 
at  an  advanced  premium,  or  at  a  higher  rate  of  interest. 
On  the  contrary,  if  a  man  has  conducted  an  extensive  busi- 
ness for  a  long  period  with  undeviating  success,  he  attains 
to  a  high  mercantile  credit,  and  is  enabled  to  borrow 
money  at  the  lowest  rates.  But  if  a  merchant  is  known 
to  be  frequently  embarrassed,  if  he  has  ever,  especially  more 
than  once  failed,  mercantile  confidence  in  him  is  destroyed. 
Iso  one  will  lend  him,  except  on  the  most  unfavorable 
terms. 

These  two  causes  of  variation  of  risk  are  apparently 
modified  by  the  practice  of  endorsing  private  notes.  If  I 
want  money  for  the  most  hazardous  investment,  or  am  of 
the  most  doubtful  credit,  if  I  can  offer  my  note  endorsed 
by  persons  of  established  mercantile  character,  it  is  raised 
at  once  to  par  ;  •  that  is,  the  extra  risk  is  immediately 
removed.  But  this  modification  is  only  apparent.  The 
endorser  will  rarely  do  this  for  nothing.  He  either  him- 
self receives  a  premium  for  it  directly  ;  that  is,  he  is  paid 


220  DISTRIBUTION. 

for  taking  the  risk  of  default  of  payment ;  or  else  two  per- 
sons mutually  endorse  for  each  other,  and  thus,  the  risk 
which  A  assumes  for  B,  is  paid  for  by  B's  assuming  a 
similar  risk  for  A.  It  is  singular  that  any  one  should  ever 
ask  another  to  endorse  his  note  merely  as  a  matter  of 
comit}7.  It  should  always  be  a  matter  of  business,  and  be 
paid  for  like  any  other  business  transaction.  A  merchant 
should  no  more  ask  another  to  endorse  his  note  gratui- 
tously, than  he  should  ask  him  to  insure  his  house  gratui- 
tously. The  nature  of  the  transaction  is  precisely  the 
same.  The  risk  in  the  one  case,  is  frequently  as  great  as 
in  the  other,  and  it  should  always,  as  much  in  the  one  case 
as  in  the  other,  be  a  matter  of  compensation. 

c.  The  risk  incurred  in  lending  capital,  is  affected  by 
the  character  of  the  Government.  This  affects  both  private 
and  public  contracts. 

If  justice  is  well  administered,  and  every  man  has 
all  reasonable  security  that  he  will  have  the  whole  power 
of  the  society  at  his  disposal,  in  order  to  enforce  a  just 
contract,  of  course  the  risk  is  less,  and  the  rate  of  interest 
lower,  than  when  experience  has  shown  that  no  such 
security  exists.  Hence,  we  see  the  economy  of  good  legis- 
lation, and  of  a  wise,  just,  and  incorruptible  judiciary. 
The  additional  interest  on  capital,  incurred  in  consequence 
of  the  bad  administration  of  justice  in  a  country,  would 
annually  pay  the  expenses  of  all  the  courts  of  law,  ten 
times  over. 

The  same  results  flow  from  confidence,  or  the  want  of 
confidence  in  the  stability  of  a  government.  A  revolution 
not  urifrequently  dissolves  contracts,  dissipates  security, 
and  renders  obligations  valueless,  both  by  destroying  the 
evidence  of  their  existence,  and  annihilating  the  means  of 
enforcing  them.  Hence,  when  such  an  event  is  feared, 
men  will  not  loan,  except  at  an  exorbitant  premium  ;  and 
they  generally  prefer  removing  their  property  to  some 


CONVENIENCE  OF   INVESTMENT.  221 

other  country,  to  subjecting  it,  for  any  premium  whatever, 
to  the  risks  of  a  revolution. 

The  same  may  be  said  of  public  contracts.  Govern- 
ments, in  whose  stability  and  good  faith  undoubted  confi- 
dence is  reposed,  borrow  the  most  enormous  sums  at  the 
lowest  rates  of  interest.  Those  which  are  in  daily  danger 
of  being  overthrown,  can  scarcely  borrow  at  all,  or,  if  they 
do  borrow,  it  is  at  the  most  ruinous  premium.  The  South 
American  governments  can  scarcely  borrow  at  any  interest. 
Great  Britain,  notwithstanding  her  present  enormous  debt, 
borrows  at  three  or  four  per  cent  to  any  amount  she 
pleases.  Nay,  so  great  is  the  public  confidence  in  her  per- 
manency and  integrity,  that  probably  there  is  scarcely  a 
civilized  nation  on  earth,  which  does  not  at  present  own 
some  share  of  her  national  debt.  The  greater  the  civil 
commotions  of  other  countries,  the  more  easily  can  she 
borrow,  because  capitalists  naturally  invest  their  property 
where  they  are  confident  of  its  security,  and  confident  that 
its  interest  will  under  all  circumstances,  be  regularly  paid. 

2.  The  rate  of  interest  is  varied  by  the  Convenience  of 
the  investment.  The  convenience  of  an  investment  depends 
upon  several  circumstances. 

a.  Facility  of  transfer.     When  a  man  loans   capital, 
he  is  of  course  ignorant  of  the  future,  and  does  not  know 
how  much  he  may  need  it  at  some  subsequent  time.     If  he 
loan  at  six  per  cent  for  two  years,  he  may  in  six  months 
find  some  investment  in  which  it  would  yield  him  eight 
per  cent,  but  having  loaned  it  for  two  years  he  cannot  now 
withdraw  it.     Hence,  it  is  a  great  advantage  if  it  can  be 
so   invested    that  he  may   without   loss,  recall  it  at   any 
moment. 

b.  Permanency  of  investment.     If  a  man  does  not  wish 
to  withdraw  a  loan,  it  is  an  advantage  to  him  to  have  it 
continue  for  a  long  period,  because  he  is  thus  saved  the 


222  DISTRIBUTION". 

loss  of  interest  which  would  occur  during  the  time  of  trans- 
fer, and  the  trouble  and  inconvenience  of  finding  another 
borrower.  This  is  of  special  benefit  to  widows,  orphans, 
persons  retired  from  business,  and  all  those  persons  who 
wish  not  to  labor  with  their  own  capital  themselves,  but 
only  to  live  upon  the  interest  of  it. 

c.  Punctuality  in  the  payment  of  interest.  It  is  a 
great  convenience  to  those  who  invest  capital  to  be  able  to 
calculate  with  certainty  on  the  payment  of  interest.  They 
can  thus  with  ease,  adjust  their  expenses,  both  to  the 
amount  of  their  income,  and  to  the  time  of  their  receipt 
of  it.  If  they  wish  to  re-invest  the  interest,  they  can 
make  their  arrangements  with  certainty,  and  thus  in- 
vest it  with  the  greatest  advantage.  They  are  also 
saved  the  trouble  of  looking  after  their  debtors,  and 
they  avoid  the  inconvenience  of  that  personal  alterca- 
tion, which  is  liable  to  arise  respecting  pecuniary  trans- 
actions. 

When  any  form  of  investment  combines  these  advan- 
tages, men  are  found  to  prefer  it  to  one  which  is  destitute 
of  them,  and  they  will  loan  their  money  on  these  terms  at 
a  lower  rate  of  interest  than  on  any  other.  Debts  in  this 
form  are  said  to  Refunded,  and  the  creditors  are  said  to 
hold  stock.  Public  debts  are  generally  thus  arranged.  The 
various  companies  formed  for  banking  purposes,  and  pur- 
poses of  internal  improvement,  are  constructed  on  the  same 
principles.  Every  one  who  contributes  a  certain  amount 
toward  the  capital  of  such  a  company,  receives  a  certifi- 
cate that  he  owns  such  a  share  of  that  capital.  He  is  en- 
titled to  his  portion  of  the  profits  at  stated  times.  He 
may  retain  this  certificate  himself  as  long  as  he  pleases,  or 
he  may  sell  it  at  any  moment,  to  any  purchaser  who  may 
want  it.  Hence,  money  may  always  be  borrowed  under 
these  circumstances,  at  the  lowest  rates. 


INTEREST  AFFECTED  BY   PHOFIT  OF  CAPITAL.       223 

3.  The  rate  of  interest  is  affected  by  tlie  Productiveness 
of  Capital. 

When  the  risk  is  the  same,  we  find  interest  higher  in 
some  countries  than  in  others,  and  higher  in  the  same  coun- 
try at  one  time  than  at  another.  Thus,  when  the  security 
is  equally  good,  interest  is  higher  in  this  country  than  in 
Great  Britain,  and  in  this  country  it  is  higher  in  the  new 
than  in  the  older  states.  And,  we  also  find  that  it  is  lower 
now  in  Great  Britain  than  formerly,  and  that  it  generally 
becomes  less  as  a  community  grows  older.  Much  of  this 
difference  depends  on  the  average  Profit  of  Capital.  The 
profit  of  capital  is  that  annual  value  which  it  yields  to  the 
possessor,  after  he  has  deducted  the  principal,  and  paid 
the  expenses  incident  to  his  actual  operation.  Thus,  if  by 
the  use  of  one  thousand  dollars  a  year,  I  am,  after  re- 
placing the  principal  and  all  the  cost  of  my  operation,  one 
hundred  dollars  richer,  this  one  hundred  dollars  is  the 
profit  of  my  capital.  Now.  the  greater  this  is  at  any  time, 
the  greater  will  be  the  sum  which  I  shall  be  willing  to  pay 
for  the  use  of  one  thousand  dollars.  If  by  the  use  of  capi- 
tal, I  can,  after  paying  all  expenses,  realize  twenty  per 
cent,  I  can  afford  to  pay  more  for  the  use  of  it,  than  if, 
after  paying  all  expenses,  I  could  realize  only  five  per  cent. 

We  may  specify  a  few  of  the  causes  on  which  the  dif- 
ference of  profit  of  capital  depends. 

a.  Fertility   of   Land.     He   who   wished    to    borrow 
money  to  invest  in  agriculture,  could  afford  to  pay  higher 
interest  when  the  land  produced  fifty  bushels  to  the  acre, 
than  when  it  produced  only  twenty-five  bushels  to  the  acre, 
provided  he  could  procure  the  land  for  the  same  purchase 
money. 

b.  Productiveness  of  Industry.     The   use   of  natural 
agents  adds  greatly  to  the  value  annually  produced  from  a 
given  amount  of  capital.     This  will  tend  to  raise  the  price 
of  capital,  since  a  man  will  give  more  for  money  to  in- 


224  DISTRIBUTION. 

vest  in  a  machine  which  will  produce  one  thousand  dollars 
a  year,  than  in  one  which  will  produce  only  five  hundred 
dollars.  It  is  true  that  the  influx  of  capital  will  tend  to 
bring  any  one  branch  of  industry  in  process  of  time  to  the 
general  level.  But  that  progressive  increase  of  productive- 
ness, which  belongs  to  the  progress  of  civilization,  tends 
to  keep  up  the  price  of  capital,  which  would  otherwise  fall 
unreasonably  low. 

c.  Tlie  Demand  for  Exchange.  The  greater  the  demand 
for  exchange,  the  more  profitable  must  be  that  capital 
which  is  invested  in  exchange.  In  a  town  where  mercan- 
tile business  is  brisk,  and  a  man  can  sell  all  his  stock  at  a 
good  profit  two  or  three  times  in  the  course  of  a  year, 
money  will  bear  a  higher  interest  than  in  a  town  where 
exchanges  are  slow,  and  he  must  keep  his  goods  on  hand 
for  a  year  or  more. 

4.  The  rate  of  interest  is  especially  affected  by  the 
Ratio  betiveen  Supply  and  Demand  of  Capital.  This  pro- 
duces the  same  effect  upon  the  rate  of  interest  as  upon 
everything  else.  Whatever  be  the  profit  of  capital,  if  the 
supply  be  very  small,  the  price  will  rise  in  proportion, 
since  he  who,  by  employing  it  at  a  high  price  can  make  a 
small  profit,  will  rather  so  employ  it,  than,  by  doing  with- 
out it,  make  no  profit  at  all.  Thus  if,  by  the  use  of  one 
thousand  dollars  for  a  year,  I  could  realize  three  hundred 
dollars,  I  might  be  willing  to  pay  two  hundred  for  the  use 
of  it,  rather  than  not  to  have  it ;  for  in  the  latter  case  I 
should  gain  nothing.  If  then,  there  were  but  little  capital 
in  the  market,  and  many  persons  were  as  willing  to  give  this 
rate  of  interest  as  myself,  I  should  be  obliged  to  give  it. 
But  if  on  the  contrary,  there  were  many  persons  desirous 
of  lending,  and  there  was  much  capital  in  the  market,  and 
I  were  the  only  person  who  would  be  willing  to  give  this 
interest,  they  would  underbid  each  other,  and  I  should  be 


INTEREST   IN   A   NEW   COUNTRY.  225 

able  to  procure  it  of  him  who  would  loan  it  to  me  at  the 
lowest  rate.  I  might  then  be  able  to  borrow  it  for  one 
hundred  and  fifty,  one  hundred,  or  even  sixty  dollars  per 
annum. 

In  a  new  and  prosperous  country,  interest  is  always 
high.  This  results  from  several  reasons  affecting  the  ratio 
of  Supply  and  Demand. 

1.  Land  is  very  cheap,  and  at  first  is  all  of  very  nearly 
the  same  market  price.     In  many  cases  it  can  be  had  for 
almost  nothing. 

2.  Land  is  very  fertile.     The  produce  of  a  soil  when 
new  is  generally  greater  than  ever  afterwards. 

3.  The  soil,  not  at  first  needing  manure,  requires  but 
small  investments  of  capital,  and  these  are  very  richly  repaid. 

4.  The   inhabitants  of  a  new  country  can  carry  with 
them  but  few  of  the  conveniences  of  life.     These  must  be 
purchased  after  they  arrive  there,  and  must  either  be  made 
on  the  spot,  or  be  imported.     Neither  of  these  can  be  done 
without  capital.     And   as   the  demand   for  these  conve- 
niences is  imperative,  and  as  the  income  of  land  is  abun- 
dant, the  settlers  are  willing  to  pay  a  high  price  for  them. 
Hence,  the  profit  both  of  mechanical  and  of  commercial 
labor  is  very  great,  and  the  price  which  is  paid  for  capi- 
tal is  very  high. 

5.  The  inhabitants  of  a  new  country  have  generally 
very  numerous  exchanges  with  the  aborigines.     Such  ex- 
changes are  exceedingly  profitable.     But  these  cannot  be 
carried  on  without  capital.     These  facts  all  tend  to  create 
a  great  demand  for  capital. 

On  the  contrary,  the  supply  of  capital  in  a  new  coun- 
try is  generally  small,  because  emigrants  are  by  no  means 
the  most  wealthy  classes  of  a  community.  Those  who  are 
living  in  peace  and  prosperity  at  home,  are  not  generally 
the  most  willing  to  brave  the  perils  and  hardships  of  the 
wilderness. 

10* 


226  DISTRIBUTION. 

Furthermore,  those  who  are  not  inclined  to  expose 
their  persons  to  the  hardships  of  a  new  country,  are  not 
inclined  to  send  their  capital  where  they  are  not  present 
to  watch  over  it  themselves.  Hence,  it  is  difficult  for  a 
while,  for  a  new  people  to  borrow,  and  they  can  overcome 
this  difficulty  only  by  the  payment  of  a  high  interest. 

These  are  the  causes  of  the  high  rate  of  interest  in  new 
countries  on  the  borders  of  civilization,  and  generally, 
wherever  savage  and  civilized  nations  intermingle. 

As  a  country  becomes  settled,  however,  these  causes 
begin  to  operate  less  powerfully  and  thus  the  rate  of  in- 
terest gradually  diminishes. 

1.  The  annual  produce  of  the  earth  is,  year  after  year, 
changed  into  fixed  capital,  and  thus  the  demand  for  capi- 
tal is  met  in  part  by  a  home  supply. 

2.  The  fertility  of  the  soil  diminishes,  so  that  it  is  ne- 
cessary to  pay  less  interest. 

3.  Land  is  sold  at  different  prices,  according  to  its  fer- 
tility, and   as  it  rises  in  price,  the  degree  of  profit  to  the 
purchaser  is  diminished. 

4.  The  wants  of  the  natives  are  supplied,  and  hence, 
one  source  of  gain  is  dried  up. 

5.  A  more  perfect  knowledge  of  the  country,  and  more 
perfect  confidence  in  its  prosperity,  diminish  the  unwil- 
lingness of  persons  in  older  countries  to  loan,  and  hence, 
capital  from  abroad  may  be  procured  with  greater  facility. 

The  gradual  operation  of  these  causes  must  tend  to 
reduce  the  rate  of  interest  in  different  countries  to  the 
same  average.  Yet  there  are  always  in  each  country  or 
section  of  country,  peculiar  circumstances  which  fix  for  a 
period,  longer  or  shorter,  what  Mr.  Fawcett  calls  "some 
point  of  steady  equilibrium  about  which  the  current  rate 
of  interest  in  that  country,  oscillates."  Thus  in  England, 
for  many  years,  the  average  rate  has  been  about  three  and 
a  quarter  per  cent,  in  Holland  it  stands  as  low  as  two  per 


INTEREST   AFFECTED    BY   FREEDOM    OF   CAPITAL.      227 

cent,  in  New  England  and  New  York  it  is  six  or  seven 
per  cent,  in  Wisconsin  and  Illinois  it  long  stood  at  ten 
per  cent,  but  is  now  evidently  declining. 

The  constant  tendency  of  civilization,  is  to  the  reduc- 
tion of  the  rate  of  interest,  because  wealth  increases  rapidly, 
and  risk  is  diminished  by  more  perfect  securities.  As 
capital  becomes  more  abundant,  in  proportion  to  the  uses 
that  are  to  be  made  of  it,  it  commands  a  less  price,  that 
is,  a  man  can  gain  less  than  formerly  with  a  capital  of  one 
thousand  dollars,  and  hence,  he  is  willing  to  pay  a  less 
interest  for  it.  But  it  is  also  to  be  remembered  that  a 
much  larger  proportion  of  men  are  worth  one  thousand 
dollars  than  formerly,  and  that  for  one  that  was  worth  one 
thousand  dollars  fifty  years  ago,  there  are  fifteen  or  twenty 
who  are  worth  ten  thousand  dollars  now ;  that  is,  men 
with  the  same  labor  are  able  to  secure  as  many  or  more 
comforts  than  formerly,  but  they  are  obliged  to  do  it  by 
the  use  of  a  larger  amount  of  capital.  They  are  obliged 
to  labor  with  a  larger  capital,  but  that  large  amount  is  as 
easily  procured  as  a  less  amount  was  formerly.  The  com- 
plaint so  frequently  heard  of  the  increasing  difficulty  of 
accumulating  property,  is  really  unfounded  ;  and  taking 
the  difficulty  or  ease  of  procuring  capital  into  the  account, 
the  more  advanced  periods  of  society  are  as  favorable  as 
any  to  the  industrious  classes. 

The  best  adjustment  of  supply  and  demand  depends  on 
the  freedom  of  capital.  By  freedom  of  capital,  is  meant 
the  unfettered  liberty  of  the  individual  to  employ  his  capi- 
tal in  any  innocent  way  that  he  pleases.  When  this  lib- 
erty is  enjoyed,  every  one  chooses  that  way  in  which  he 
supposes  that  he  shall  be  most  successful.  The  larger  the 
profit  he  realizes,  the  larger  will  be  the  interest  which  he 
will  be  willing  to  pay.  When  he  is  obliged  to  withhold  it 
from  a  mode  of  investment  which  he  prefers,  and  to  em- 
ploy it  in  one  which  he  does  not  prefer,  he  must  divert  it 


228  DISTRIBUTION. 

from  a  more  to  a  less  profitable  mode  of  investment. 
Hence,  as  he  is  obliged  to  employ  it  in  a  less  profitable 
instead  of  a  more  profitable  investment,  he  can  afford  to 
pay  less  interest,  and  the  price  of  interest,  by  the  effect 
of  this  interference,  must  fall.  Such  must  be  the  effect  of 
all  monopolies,  and  of  all  means  by  which  the  active 
power  of  capital  is  diminished. 

What  has  been  said  brings  us  to  the  following  general 
conclusions  : 

1.  That,  other  things  being  equal,  interest  will  be  high 
when  the  risk  is  great,  and  low,  ivhen  the  risk  is  small. 

2.  That  interest  will  be  high,  when  the  profit  of  capital 
is  great,  and  low,  when  the  profit  of  capital  is  small. 

3.  That  both  of  these  affect  each  other  within  certain 
limits;  that  is,  when  profit  is  great,  if  the  risk  be  also 
great,  interest  will  be  very  high,  because  the  increase  of  risk 
diminishes  the  supply. 

4.  But  -when  profit  is  low  and  the  risk  is  great,  there 
will  be  no  loaning  whatever,  because  what  is  paid  for  risk, 
will  be  more  than  can  be  gained  by  use,  and  men  could  not 
profit  by  borrowing. 

The  rate  of  interest  will  be  always  affected  by  every 
circumstance  which  affects  either  risk  or  profit  of  capital. 
War,  or  the  rumor  of  war,  by  increasing  the  risk,  raises 
the  rate  of  interest  in  property  affected  by  it.  In  prop- 
erty not  affected  by  it,  the  same  cause  depresses  the  rate 
of  interest,  because  it  diminishes  the  means  and  oppor- 
tunity for  production,  and  of  course  diminishes  the  profit 
of  capital.  On  the  other  hand,  the  discovery  of  any  new 
mode  of  profitably  employing  capital,  raises  the'  rate  of 
interest  by  creating  an  increased  demand  for  capital. 

The  rate  of  interest  at  any  particular  time  or  place,  is 
not  of  itself  an  indication  of  the  prosperity  or  of  the  de- 
cline of  a  country.  The  indication  is  to  be  sought  for,  not 


INTEREST  AS  AN  INDEX  OF  PROSPERITY.      219 

in  the  rate  of  interest,  but  in  the  cause  by  which  that  rate 
is  affected. 

1.  Whenever  the  rate  of  interest  is  raised  by  increase  of 
risk,  this  is  an  indication  of  adversity.     Rise  of  interest 
from  such  a  source  benefits  no  one.     It  is  of  no  service  to 
the  lender,  because  he  derives  no  profit  from  that  part  of 
the  premium  which  insures  him  against  loss.     It  is  as  prof- 
itable for  him  to  loan  for  five  per  cent  without  risk,  as  to 
loan  for  ten  per  cent,  when  five  per  cent  is  for  risk,  and 
five  per  cent  for  use.     It  is  an  injury  to  the  borrower, 
because  one  hundred  dollars  are  worth  no  more  to  him 
when   he   pays   five   per  cent    for    risk,    than   when    he 
pays  nothing  for  it.     Whatever  therefore,  is  paid  for  risk, 
is  always   a  loss  to  both    parties,  and  the  more  there  is 
thus  paid,  the  worse  it  is  for  both.     Hence,  the  rise  of  in- 
terest caused  by  bad  government,  civil  commotion,  revo- 
lutions, wars  and  general  immorality,  is  always  an  indica- 
tion of  national  decline,  and  the  fall  of  interest  produced 
by  the  contrary  causes,  is  an  indication  of  national  pros- 
perity. 

2.  On  the  other  hand  the  temporary  rise  of  interest 
caused  by  increased  productiveness  and  the  development  of 
new  national  resources,  is  an  indication  of  national  pros- 
perity.    It  shows  that  more  than  ordinary  valuable  modes 
of  employing  capital  have  been  discovered,  and  that, men 
can  afford  to  pay  a  larger  price  for  the  use  of   capital. 
This  is  however  a  temporary  rise,  because  a  rise  from  such 
a  cause  will  soon  equalize  itself.     Increased  productiveness 
will  soon  supply  capital,  or  it  will  be  imported  from  less 
favored  countries.     Thus,  in  new  countries  the  rate  of  in- 
terest is  high,  but  this  is  by  no  means  an  indication  of  ad- 
versity, for  such  countries,  while  paying  so  high  a  rate  for 
capital,  yet  grow  rich  faster  than  those  from  which  they 
borrow. 

3.  The  gradual  fall  of  the  rate  of  interest  caused  by 


230  DISTRIBUTION. 

the  diminution  of  risk,  and  the  greater  abundance  of  capi- 
tal, is  an  evidence  of  prosperity.  It  shows  that  a  larger 
proportion  of  the  means  of  subsistence  is  falling  to  the 
share  of  every  individual ;  that  every  man  can  more  easily 
procure  capital ;  and  that  every  man  in  order  to  support 
himself,  produces  a  larger  amount  than  formerly,  of  what- 
ever will  contribute  to  the  comfort  and  convenience  of  his 
neighbor. 

4.  On  the  other  hand,  the  fall  of  the  rate  of  interest, 
caused  by  a  suspension  of  the  means  of  production,  is  an 
evidence  of  national  adversity.  Suppose  a  war  to  occur 
between  this  country  and  France.  The  capital  now  em- 
ployed in  transportation,  must  be  almost  wholly  unproduc- 
tive. The  capital  employed  in  producing  our  exports  to 
that  country,  must  also  be  useless.  Hence,  the  rate  of 
interest  would  fall  ;  for  many  men  would  have  no  business 
in  which  to  employ  their  capital.  The  case  would  be  the 
same,  were  a  fall  in  the  price  of  capital  to  proceed  from 
civil  commotion,  or  any  similar  cause.  And  the  adversity 
would  remain  until  the  cause  were  removed.  For  if  capi- 
tal were  removed  out  of  the  country  until,  from  reduction 
in  the  supply,  the  rate  of  interest  rose,  the  industry  of  the 
country  would  still  be  depressed,  until,  by  peace,  order  and 
good  government,  it  regained  its  natural  advantages.  In 
case  of  war,  the  production  of  articles  used  in  war  is  greatly 
stimulated,  and  business  generally  is  for  a  time  quickened 
to  unwonted  activity.  But  soon  after  peace  is  restored, 
there  comes  a  reaction  when  the  normal  and  adverse  effect 
of  the  disturbance  appears. 

Hence,  we  see  that  in  order  to  form  any  correct  opin- 
ion respecting  the  condition  of  the  country  from  the  pres- 
ent rate  of  interest,  we  must  always  seek  for  the  causes  of 
that  rate,  instead  of  deciding  from  the  mere  rate  itself. 

Usury  Laws. — In   former  times,   when  money  was 


USURY   LAWS.  231 

borrowed  chiefly  to  be  spent  in  immediate  consumption, 
to  take  interest  seemed  to  imply  taking  advantage  of  men's 
necessities,  and  the  business  of  money-lending  came  into 
bad  repute.  The  ban  of  society  was  upon  those  who  en- 
gaged in  it,  and  they  were  driven  to  demand  exorbitant 
rates  as  an  offset  to  the  odium  under  which  they  lived. 
This  prompted  the  enactment  of  laws  to  restrict  and  regu- 
late interest,  which  were  commonly  called  usury-laws. 

The  old  Roman  laws  against  insolvent  debtors  were  ex- 
tremely severe.  To  escape  their  penalty,  men  consented 
to  pay  what  the  lenders  were  disposed  to  exact,  exorbitant 
interest.  There  was  therefore  a  kind  of  necessity  that  the 
borrower  should  be  protected  by  laws  limiting  the  rate  of 
interest  that  might  be  demanded. 

In  the  middle  ages,  restriction  rather  than  freedom  was 
the  rule  in  all  departments  and  in  all  relations  of  productive 
industry.  Interest  therefore,  like  everything  else,  was 
subjected  to  limitation  by  law. 

At  the  present  day,  the  necessary  cooperation  of  labor 
and  capital  in  the  development  of  trade,  is  better  understood. 
The  advantage  to  borrower  as  well  as  lender,  of  loans  made 
to  be  employed  in  active,  profitable  business  is  also  appar- 
ent to  all,  yet  the  old  prejudice  still  lingers  and  perpetuates 
in  the  statute-books  of  most  states,  usury-laws.  The  spe- 
cific object  of  such  laws  is  to  define  a  certain  rate  as  the 
highest  rate  of  interest  permissible.  Such  laws  are  in 
direct  conflict  with  the  first  principles  of  sound  political 
economy,  as  several  considerations  clearly  show. 

1.  They  violate  the  right  of  property.     A  man  has  the 
same  right  to  the  market  price  of  his  capital  in  money,  as 
he  has  to  the  market  price  of  his  house,  his  horse,  his  ship, 
or  any  other  of  his  possessions. 

2.  The  real  price  of  capital  cannot  le  fixed  by  law,  any 
more  than  the  real  price  of  flour,  or  iron,  or  any  other 
commodity.     There  is,  therefore,  no  more  reason  for  as- 


232  DISTRIBUTION. 

signing  to  it  a  fixed- value,  than  there  is  for  assigning  a 
fixed  value  to  any  other  commodity. 

3.  The  price  of  capital  or  money  is  really  more  variable 
than  that  of  any  other  commodity.     Most  other  commodi- 
ties have  but  one  source  of  variation,  namely,  use  or  profit. 
But  capital  in  the  form  of  money  is  liable  to  two  sources 
of  variation,  risk  and  use.     These  vary  at  different  times, 
in  different  investments,  and  with   different  individuals. 
There  is,  therefore,  less  reason  why  the  price  of  money 
should  be  fixed  by  law,  than  why  the  price  of  anything 
else  should  be  so  fixed. 

4.  These  laws,  instead  of  preventing,  give  rise  to  great 
and  disastrous  fluctuations  in  the  price  of  money. 

Suppose  that  to-day,  money  is  worth  in  the  ordinary 
operations  of  business,  ten  per  cent,  and  it  is  worth  six  per 
cent  in  loan.  A  man  will  as  soon  loan  as  employ  it  in 
business,  if  he  possesses  more  than  he  wishes  to  use. 
There  will  then  be  a  fair  supply  of  money  in  the  market. 
But  let  the  profits  of  capital  rise,  so  that,  in  the  ordinary 
operations  of  business,  capital  is  worth  twenty  per  cent. 
If  now  the  rate  of  interest  rose  with  this  increased  rate  of 
profit,  the  same  individuals  would  be  as  willing  to  loan  as 
before,  and  thus,  the  supply  following  the  demand,  there 
would  arise  no  peculiar  scarcity.  The  high  rate  of  inter- 
est would  also  attract  capital  from  abroad,  and  thus  in  a 
very  short  time,  it  would  in  this  particular  place,  be 
brought  to  the  general  level. 

But  suppose  that  six  per  cent  were  the  highest  legal 
rate  of  interest,  and  that  he  who  loaned  at  a  higher  rate, 
was  liable  to  lose  both  his  principal  and  interest,  and  also 
his  mercantile  character.  In  this  case,  as  soon  as  the 
profit  of  capital  in  business  rose  to  fifteen  or  twenty  per 
cent,  no  one  who  could  thus  employ  it,  would  loan  it  at 
six  per  cent.  Hence,  the  supply  would  be  immediately 
diminished  ;  and  this  would  of  course,  cause  a  greater  rise 


USURY   LAWS.  233 

of  interest.  Those  who  from  honor  or  conscience  obeyed 
the  laws,  would  withdraw  from  the  market,  and  employ 
their  capital  in  some  other  way,  and  no  one  would  loan 
but  those  who  were  willing  to  risk  the  consequences  of 
detection.  These,  having  the  money  market  in  their  own 
hands,  will  of  course  charge  for  the  use  and  for  the  risk  of 
detection,  and  hence,  the  price  in  a  few  days  may  become 
doubled  or  trebled.  At  the  same  time,  although  the  real 
value  of  money  may  be  fifteen  or  twenty  per  cent,  yet  be- 
cause the  legal  price  is  six  per  cent,  there  is  no  inducement 
for  capital  to  come  in  from  abroad,  to  supply  the  demand. 
Hence,  the  change  in  the  money  market  has,  by  reason  of 
this  law,  no  tendency  whatever  to  regulate  itself. 

5.  Such  laws  can  never  be  enforced.  Men  in  want  of 
money  will  pay  what  they  please  for  it,  and  those  who 
choose  to  pay  enough  for  it  can  generally  borrow.  The 
effect  then  of  the  usury  laws  is  merely  to  drive  the  best  and 
most  conscientious  lenders  out  of  the  market,  or  else  oblige 
them  to  lend  by  means  of  subordinate  and  less  scrupulous 
agents.  For  this  agency  the  borrower  must  pay,  and  hence 
the  additional  rate  of  interest.  To  this  it  is  objected  that 
money  is  not  like  other  things,  inasmuch  as  it  is  a  neces- 
sary of  life  to  the  merchant,  and  therefore  society  must 
step  in  to  deliver  him  from  the  effects  of  extortion.  We 
may  answer  : 

1.  It  is  manifest  that  this  interference  does  not  render 
the  merchant's  condition  the  better,  but  rather  the  worse. 
Though  the  assistance,  therefore,  be  well  intended,  he  may 
very  well  dispense  with  it. 

2.  The   greater   the   necessity   for   money,    the    more 
urgent  is  the  necessity  of  leaving  it  undisturbed  by  legisla- 
tive interference.     It  makes  small  difference  to  the  com- 
munity whether  the  price  of  jewelry  be  fixed  by  law  or  not. 
But  suppose  that   when  flour  would  bring  ten   dollars  a 
barrel,  the  government  forbade  it  to  be  sold  for  more  than. 


234  DISTRIBUTION. 

seven  dollars.  Who  does  not  see  that  the  flour  would  be 
all  driven  away  and  the  people  starved  ?  The  same  prin- 
ciple applies  to  the  rate  of  interest.  In  all  active  commer- 
cial centres,  this  is  now  understood  and  acknowledged. 
The  old  prejudice  is  most  cherished  among  the  farmers. 

Every  state  should  have  a  simple  enactment  of  law  de- 
fining a  legal  rate  of  interest  applicable  to  cases  where  the 
contract  indicates  no  specific  rate,  or  where,  without  formal 
contract,  a  debt  has  been  incurred  and  interest  is  due. 
Such  a  law  tends  to  prevent  disputes  and  is  of  advantage 
to  both  parties.  Legislation  which  attempts  to  go  beyond 
this  is  wrong  and  mischievous. 

Usury-laws  offer  a  premium  for  the  defiance  of  law,  and 
confer  a  monopoly  on  unscrupulous  extortioners.  The 
reasons  urged  for  their  enactment  apply  to  all  other 
things  with  equal  force,  and  would  require  the  prices  of 
all  commodities  to  be  arbitrarily  fixed  by  law,  and  this 
would  be  as  absurd  as  to  try  by  legislation  to  regulate  the 
tides  of  the  ocean.  Legal  sanction  and  security  for  all 
reasonable  contracts  in  loaning  capital,  encourage  free 
competition  and  constitute  the  surest  safeguard  against 
excessive  interest.  The  abrogation  of  usury-laws  in  Great 
Britain  and  in  Massachusetts  and  other  American  states, 
may  be  welcomed  as  first  steps  in  a  reform,  destined,  we 
hope,  soon  to  be  universal. 

Dividends.  This  term  is  used  to  denote  the  remune- 
ration of  capital  invested  in  Stock-companies.  This  form 
of  compensation  for  the  use  of  capital  is  marked  by  some 
peculiarities  which  deserve  a  special  notice. 

Stock-companies  are  designed  to  unite  contributions  of 
capital  from  a  number  of  persons,  for  business  operations 
on  a  scale  too  large  for  the  means  of  an  individual  capital- 
ist. Such  organizations  are  formed  chiefly  for  manufac- 
turing in  large  establishments,  for  banking,  for  insurance, 


DIVIDENDS.  235 

for  the  construction  and  management  of  railways,  canals, 
and  the  telegraph,  for  express  transportation,  for  working 
mines  and  for  extended  navigation.  In  forming  a  company, 
the  enterprise  is  projected,  an  estimate  is  made  of  the 
amount  of  capital  required,  and  this  is  divided  into  equal  por- 
tions called  shares,  which  are  offered  more  or  less  freely  to 
the  public.  Most  commonly  the  shares  are  one  hundred 
dollars  each.  Whoever  purchases  one  or  more  shares 
receives  for  his  money  a  certificate  of  ownership  which 
constitutes  him  a  member  of  the  company,  entitled  to  a 
vote  in  the  election  of  directors  and  to  a  participation  in 
the  proceeds  of  the  business,  in  proportion  to  the  number 
of  shares  standing  m  his  name.  These  shares  are  trans- 
ferable under  certain  regulations  of  each  company  and  can 
be  sold,  like  any  other  property,  at  their  market- value. 
The  owner  for  the  time  being  is  the  stock-holder  and  rec- 
ognized member  of  the  company.  Ordinarily,  a  board  of 
directors  is  annually  elected  by  the  stock-holders,  and  the 
oversight  of  the  business  is  entrusted  to  them.  They  ap- 
point a  manager  and  other  salaried  officers,  who  attend  to 
details  and  are  accountable  to  the  directors. 

Quarterly  or  semi-annually,  the  accounts  are  balanced, 
an  inventory  is  made  and  the  profits  of  the  business,  after 
providing  for  all  expenses,  are  ascertained.  On  the  basis 
of  that  showing,  dividends  are  declared,  setting  down  a  cer- 
tain percentage  to  each  share  of  the  stock.  In  all  well- 
managed  companies,  before  the  declaration  of  dividends, 
there  is  set  aside  from  the  profits  a  small  reserve  to  meet 
emergencies.  This  reserve  accumulates  from  year  to  year, 
adding  steadily  to  the  real  value  of  the  stock.  Sometimes 
this  reserve  or  a  portion  of  it,  is  divided  among  the  stock- 
holders by  an  extra  cash  dividend.  Sometimes  it  is  ap- 
propriated to  the  purchase  of  new  buildings  and  new 
machinery  for  the  expansion  of  the  business.  In  this  case, 
these  outlays  are  regarded  as  increasing  the  capital  and  a 


236  DISTKIBUTIOX. 

stock-dividend  is  made,  that  is,  each  share-holder  receives 
au  addition  to  his" stock  proportioned  to  the  number  of  his 
shares.  Thenceforward,  the  profits  are  divided  pro  rata, 
to  the  whole  amount  of  stock  thus  increased. 

For  illustration  of  the  whole  matter,  suppose  A.  B.  took 
fifty  shares  of  the  stock  of  the  Pacific  Mills  Manufacturing 
Company,  on  which  he  has  received  returns  for  ten  years. 
These  shares  represented  five  thousand  dollars  of  capital 
originally  invested  in  this  way.  Regular  semi-anuual  casli 
dividends  of  five  per  cent,  that  is  ten  per  cent  per  annum, 
have  been  made.  Three  years  after  the  company  was 
formed,  a  stock-dividend  of  twenty  per  cent  was  declared, 
and  three  years  later  another  stock-dividend  of  the  same 
amount  was  made.  The  company  has  still  a  considerable 
reserve  in  which  every  stock-holder  has  an  interest.  In 
view  of  this  reserve,  the  large  profits,  and  the  high  char- 
acter of  the  managers,  this  stock  when  offered  for  sale, 
commands  a  premium  of  forty  per  cent,  that  is,  for 
every  share  of  stock  rated  at  one  hundred  dollars,  purchas- 
ers are  willing  to  pay  one  hundred  and  forty  dollars.  On 
these  suppositions,  A.  B.'s  remuneration  for  his  capital  for 
ten  years  will  stand  thus  : 

Cash  dividend  on  $5,000  at  ten  per  cent  for  ten  years, $5,000 

"         "         "       1,000        "        "        "    seven    " 700 

"          "          "       1,200        "        "        "      four     " 480 

First  stock-dividend,  20  per  cent  on  original  stock 1,000 

Second   "         "          20  per  cent  "    increased"      1,200 

Premium  of  present  market  value,  40  per  cent  on  $7,200 2,880 

Total $11,260 

This  is  equal  to  an  average  of  nearly  twenty-three  per 
cent  for  the  whole  period.  All  of  this  may  be  set  down  as 
earned  by  the  original  capital  thus  invested.  Meantime 
the  ordinary  rate  of  interest  in  New  England  where  the 
mill  is  situated,  has  been  not  more  than  seven  per  cent. 
Simple  interest  on  the  original  five  thousand  for  ten  years, 


DIVIDENDS.  237 

would  have  amounted  to  three  thousand  five  hundred. 
The  difference  between  this  amount  and  the  sum  given 
above  is  seven  thousand  seven  hundred  and  sixty,  which  is 
therefore  profits,  the  surplus  over  the  ordinary  remunera- 
tion of  capital. 

We  have  thus  brought  to  view  the  chief  peculiarity  of 
this  form  of  returns  for  capital.  Properly  considered, 
Dividends  include  two  elements,  interest  and  profits.  If 
instead  of  buying  stock,  A.  13.  had  loaned  his  money  to 
the  manufacturing  company,  he  would  have  received  only 
interest.  But  as  an  owner  of  stock,  he  becomes  a  direct 
partner  in  the  business,  entitled  to  a  share  in  the  profits, 
liable  also  to  share  in  its  losses.  The  case  we  have  sup- 
posed is  a  favorable  one,  yet  by  no  means  extraordinary. 
It  must  be  remembered  however,  that  many  investments 
of  this  kind  yield  no  dividends,  or  such  as  amount  to  less 
than  ordinary  interest.  In  some  cases,  the  capital  is  lost 
entirely  ;  and  in  certain  corporations,  such  as  our  national 
banks,  each  stock-holder  is  by  law,  made  liable  not  only  to 
lose  his  stock,  but  to  pay  an  additional  amount  equal  to 
that  of  his  stock,  if  necessary,  toward  liquidating  the  debts 
of  the  company.  There  are  besides,  continual  fluctuations 
in  the  market-value  of  many  stocks,  caused  by  gambling 
operations  of  brokers  and  adventurous  speculators, — the 
bulls  and  bears  of  Wall  Street.  Often,  as  seen  in  some 
railway  companies,  the  managers  sacrifice  the  interests  of 
the  corporation,  for  the  sake  of  making  a  fortune  for 
themselves  through  fluctuations  in  the  price  of  stocks, 
caused  by  their  own  action,  and  of  which  they  know  best 
how  to  take  advantage.  In  other  instances,  as  appears  in 
some  insurance  companies,  the  officers  and  managers,  hold- 
ing a  majority  of  the  shares,  vote  to  themselves  salaries 
which  use  up  a  large  portion  of  the  profits.  Frequent 
frauds  and  defalcations  also  appear,  through  abuse  of  trusts 
in  managing  business  with  funds  belonging  to  a  common 


238  "  DISTKIBUTIOX. 

stock.  Men  of  highest  character  for  integrity,  have  fallen 
under  the  delusive  snares,  the'  temptations,  subtle  and 
strong,  which  beset  these  positions.  And  by  wild  and 
utterly  baseless  schemes  of  fradulent  organizations,  many 
simple  ones  are  induced  to  embark  their  carefully  saved 
capital  on  an  open  sea,  in  paper  boats,  through  which  it 
soon  sinks  to  the  bottom  never  to  be  recovered.  Capital 
invested  in  this  form,  is  subject  more  or  less  to  these  risks. 
The  interests  of  the  small  stock-holder  are  in  other  hands 
than  his  own,  subject  often  to  the  will  of  men  of  cold  mer- 
ciless selfishness.  A  careful  estimate  of  the  results  of  such 
investments,  would  probably  show  average  returns  much 
less  than  ordinary  interest.  Yet,  shrewd  foresight  in  the 
careful  selection  of  stocks  may  secure  a  tolerable  certainty 
of  dividends,  which  will  yield,  besides  ordinary  interest,  a 
considerable  profit.  The  danger  is  always  that,  under  an 
illusion  of  the  imagination  excited  by  occasional  singular 
examples  of  success  in  these  operations,  the  risks  will  be 
overlooked,  sanguine  expectations  will  be  raised,  and  men 
will  find  too  late,  to  their  loss  and  grief,  how  treacherous 
are  the  seas  to  which  capital  in  such  investments  are 
exposed. 


CHAPTER  XVII. 

DISTRIBUTION  OF  PROFITS. 

Profit  is  a  term  popularly  used  in  a  broad  sense,  to 
denote  any  benefit  proceeding  from  any  kind  of  exertion, 
as  we  speak  of  the  profit  of  study,  of  physical  exercise,  of 
social  intercourse,  etc.  As  a  technical  term  of  political 
economy  representing  the  proceeds  of  industry,  it  is  em- 
ployed with  too  much  looseness  and  ambiguity.  Most 
writers  define  profits  to  be  "  the  remuneration  paid  for  the 
use  of  capital,"  making  the  term  include  interest  and 
something  more.  At  the  same  time,  they  say  that  in  esti- 
mating the  cost  of  any  product,  interest  at  the  current 
rate  on  the  capital  employed,  should  be  reckoned  in.  Thus 
gross  proceeds  are  confused  with  net  proceeds  under  the 
same  term.  Mr.  J.  Stuart  Mill  says,  "  The  three  parts 
into  which  profit  may  be  considered  as  resolving  itself,  may 
be  described  respectively  as  interest,  insurance  and  ivages 
of  superintendence."  Mr.  Amusa  Walker  makes  the  mat- 
ter more  definite  at  least,  by  representing  profits  as  the 
share  which  falls  to  the  employer  or  manager,  or  to  use 
the  convenient  French  term  "  I' entrepreneur  "  who  effects 
a  union  between  capital  and  labor  and  directs  their  active 
cooperation.  This  loose  and  varied  use  of  an  important 
term  is  certainly  not  scientific. 

It  seems  clearer  and  better  to  hold  this  word  profits 
strictly  to  mean  the  net  proceeds,  the  surplus  after  the  neces- 
sary expenses  of  business  have  been  deducted.  A  consistent 
presentation  of  our  science  requires  just  this  term  and  pre- 


240  DISTRIBUTION. 

scribes  for  it  this  specific  meaning.  We  have  seen  that  the 
main  factors  in  the  production  of  wealth  are  labor  and 
capital.  We  have  seen  that  various  kinds  of  labor  are 
necessary,  as  simple  labor,  skilled  labor,  and  labor  of  over- 
sight, superintendence  and  general  management.  We 
have  seen  also  that  these  different  kinds  of  labor  are  com- 
pensated by  different  methods  and  at  different  rates. 
Those  engaged  in  direct,  operative  labor  constitute  the 
great  majority  of  laborers  and  receive  their  remuneration 
in  wages ;  those  who  have  the  responsible  charge  of  over- 
sight and  management  are  compensated  by  salaries,  fixed 
according  to  the  estimated  importance  of  their  service  ; 
and  the  proper  remuneration  of  capital  is  interest.  All 
these  outlays  are  to  be  reckoned  as  expenses,  and  with 
them  are  to  be  included  the  two  other  items,  insurance,  or 
what  is  paid  to  guard  against  certain  risks,  and  taxes  paid 
for  protection  by  the  government.  Now,  if  the  products 
of  an  industrial  establishment,  after  keeping  the  capital 
good,  provide  for  these  expenses  and  nothing  more,  the 
business  is  just  sustaining  itself,  but  it  yields  no  profits. 
In  that  case,  since  all  parties  get  their  legitimate  compen- 
sation, they  may  be  satisfied  to  run  on  so  for  years. 
Whatever  is  realized  beyond  this,  is  profit.  If  the  pro- 
ceeds come  short  of  providing  for  these  expenses,  some  of 
the  parties  must  suffer  loss. 

When  the  proceeds  just  cover  the  expenses  named, 
while  the  business  as  a  whole  yields  no  profit,  each  of  the 
several  parties  concerned  may  be  earning  for  himself  an 
individual  profit.  The  laborer,  out  of  his  wages  at  forty 
dollars  per  month,  may  support  himself  on  thirty-five,  and 
have  for  the  year  a  profit  of  sixty  dollars,  deposited  in  the 
savings-bank.  The  foreman  from  his  salary  of  one  thou- 
sand dollars  per  year,  may  lay  away  in  like  manner,,  two 
hundred  as  his  profit.  The  manager,  with  his  salary  of 
ten  thousand  dollars  a  year,  may,  if  lie  chooses,  spend  all 


PKOFITS.  241 

in  luxurious  living,  or  by  a  little  self-denial,  he  may  add 
one  half  the  amount,  his  profit,  to  his  accumulating  wealth. 
And  the  capitalist  receiving  seven  per  cent  on  his  fifty 
thousand  invested,  may  turn  a  portion,  more  or  less,  of 
this  interest  to  increase  his  capital  and  reckon  so  much  as 
his  profit.  In  this  view  of  the  matter,  each  individual  is 
regarded  with  reference  to  the  personal  end  for  which  he 
employs  his  labor  or  his  means,  that  is,  to  secure  a  living, 
and  if  possible,  a  surplus  beyond.  This  use  of  the  term  is 
not  at  variance  with  our  technical  definition.  But  in  our 
science,  the  word  is  more  especially  employed  in  its  broader 
application  to  the  proceeds  of  industry  in  which  capital 
and  labor  are  united. 

The  principle  is  the  same  when  one  combines  in  himself 
the  functions  of  operative,  manager  and  capitalist  ;  only  in 
such  a  case,  wages,  salary,  interest  and  profits  if  there  be 
any,  all  come  to  him.  Even  then,  the  profits  of  his  busi- 
ness can  be  distinctly  defined,  only  by  setting  down  a  por- 
tion of  the  gross  proceeds  as  wages  for  his  labor,  another 
portion  as  reward  for  management,  another  as  interest  for 
his  capital  and  something  for  taxes  and  insurance.  The 
net  proceeds,  after  deducting  these,  would  be  the  profits 
of  his  business,  and  in  this  surplus,  if  anywhere,  he  will 
find  the  main  advantage  of  conducting  an  independent 
business,  instead  of  loaning  his  capital  and  engaging  his 
labor  and  skill  in  the  service  of  others. 

This  rule  is  especially  to  be  applied  in  all  the  complica- 
ted arrangements  of  productive  industry,  where  different 
parties  representing  different  interests  are  united.  In  all 
these  combinations,  the  great  aim  is  to  make  a  profit  and  to 
make  it  as  large  as  possible.  It  is  evident  that  profits  can 
be  legitimately  increased  only  by  reducing  expenses,  or  by 
increasing  the  amount  and  the  value  of  the  products.  The 
amount  of  profits  will  be  varied  by  whatever  affects  favora- 
bly or  unfavorably  either  the  efficiency  and  fruitfulness  of 
11 


242  DISTRIBUTION. 

the  industry,  or  the  expense  of  carrying  it  ou.  Hence,  the 
importance  of  wise  and  faithful  management.  This  is  the 
most  important  service  and  deserves  the  highest  compensa- 
tion. But  this  fact  does  not  warrant  the  appropriation  of 
the  entire  profits  to  "  the  entrepreneur." 

In  this  connection,  another  common  error  must  be 
noticed.  It  is  that  of  expressing  the  measure  of  profits  in 
a  business,  by  a  percentage  on  the  capital  invested.  If  the 
profits  belong  exclusively  to  the  capital,  there  may  be  some 
propriety  in  this  usage.  But  at  best,  it  is  an  indefinite, 
almost  unmeaning  way  of  stating  the  matter.  In  many 
cases,  the  labor  is  of  more  account  than  the  capital.  A 
laborer  may,  as  we  have  seen,  gain  a  profit  from  his  indus- 
try without  any  capital  of  his  own.  A  shoemaker  with  a 
capital  of  five  hundred  dollars,  may  by  untiring  industry, 
make  his  proceeds  count  a  hundred  per  cent  on  that 
amount  and  yet  receive  no  sufficient  return  for  his  labor  ; 
his  business  yields  no  profits  at  all.  A  return  of  twenty 
per  cent  on  five  hundred  thousand  dollars,  invested  in  a 
business  done  on  a  large  scale,  may  furnish  ample  remune- 
ration for  labor  and  management,  with  a  large  margin  for 
profits.  Hence,  often,  a  man  will  find  it  for  his  advantage 
to  work  for  wasres  or  a  salarv  in  connection  with  a  large 

O  ^/  O 

establishment,  rather  than  to  attempt  an  independent  busi- 
ness. So  with  truth  is  it  said,  '•'  It  is  in  the  nature  of 
trade  and  manufacture  that  great  capital  drives  small  capi- 
tal out  of  the  field  ;  it  can  work  for  smaller  returns." 

With  this  understanding  of  the  nature  of  profits  and 
the  manifest  facts  that  industry  is  carried  on  with  a  view 
to  profits,  and  that  successful  business  actually  yields  prof- 
its, we  come  to  the  question,  How  the  profits  are  to  be  dis- 
tributed. Most  writers,  from  Adam  Smith  to  J.  S.  Mill, 
have  treated  profits  as  the  remuneration  of  capital,  and 
therefore  to  be  assigned  wholly  to  the  owners  of  capital. 


CAPITAL   MAY    NOT   CLAIM    ALL  THE    PROFITS.         243 

When  the  owner  of  the  capital  or  a  large  portion  of  it,  is 
also  manager  of  the  business,  the  power  is  in  his  hands, 
and  generally  lie  will  use  it  for  his  own  advantage.  This 
is  most  frequently  the  case,  and  hence,  as  a  matter  of  fact, 
the  capitalists  do  quite  commonly  get  the  whole  benefit  of 
the  profits.  But  our  common  sense  of  right  cannot  be 
satisfied  with  such  a  distribution.  The  usage  may  be  tol- 
erated, but  the  calm  sober  judgment  of  men  pronounces  it 
not  equitable.  There  is  in  it  an  element  of  tyranny  which 
laborers  feel  and  groan  under  and  complain  of,  not  with- 
out reason.  Take  an  illustration  from  agricultural  indus- 
try in  England,  where  capital,  in  the  form  of  land,  is  made 
by  law,  a  monopoly,  enjoyed  by  few.  The  case  comes 
before  us  stated  hypothetically,  but  it  finds  many  a  coun- 
terpart in  fact.  Lord  Dundreary,  sole  proprietor  of  ten 
thousand  acres,  rents  his  lands  to  forty  tenant-farmers,  each 
having  two  hundred  and  fifty  acres,  at  thirty  dollars  per 
acre.  These  farmers,  furnishing  skill,  executive  ability 
and  some  capital  in  the  form  of  tools,  live-stock,  etc., 
make  half  as  much  per  acre,  as  the  rent  they  pay.  They 
employ  four  hundred  laborers — ten  for  each  farm,  on 
wages  at  about  four  dollars  per  week.  Then  we  have  the 
following  footing : 

One  capitalist  receives  in  rent $300,000 

Forty  farmers  get  for  their  returns  ($3,750  each) 150,000 

Four  hundred  laborers  receive  in  wages  ($300  each  per  year) 80,000 

Total  proceeds  of  the  estate $530,000 

Four  hundred  and  forty-one  men,  representing 
probably  as  many  families,  are  drawing  on  the  pro- 
ducts of  the  ten  thousand  acres.  A  single  one,  my  lord, 
the  chief  capitalist,  takes  for  himself  more  than  half 
the  entire  proceeds,  absorbing  all  the  profits.  Forty 
farmers  receive  a  fair  compensation  for  their  capital,  skill 
and  care  in  managing  the  business.  Four  hundred  labor- 
ers, reduced  to  the  lowest  state  of  penury  and  degradation, 


244  DISTRIBUTION. 

hardly  keep  soul  and  body  together.  In  view  of  such 
facts,  we  do  not  wonder  that  an  intelligent  farm-laborer, 
Joseph  Arch,  should  rise  in  his  place  and  move  for  some 
radical  reform  and  relief  ;  or,  if  we  may  credit  the  news- 
paper report  of  his  speech,  that  Mr.  Gladstone  should  say 
of  the  British  land-laws,  "  I  am  in  favor  of  rather  bold  and 
important,  if  not  sweeping  change.  Greater  freedom 
ought  to  be  established,  and  I  think  that  not  merely  eco- 
nomical but  social  mischief  results  from  the  present  system. 
Therefore,  I  am  prepared  to  entertain  on  that  subject,  a 
great  change." 

In  our  country,  since  slavery  ceased,  so  extreme  wrong 
could  not  probably  exist  in  the  department  of  agricultural 
industry,  nor  perhaps  in  any  other  branch  of  business. 
But  the  principle  that  profits  are  the  reward  of  capital, 
exclusively,  involves  such  a  wrong  in  greater  or  less  degree. 
Probably,  the  detailed  statement  of  the  disposition  actually 
made  of  the  proceeds  of  many  of  our  large  manufacturing 
establishments  and  railway  operations,  would  reveal  like 
inequalities,  against  which  the  common  mind  instinctively 
protests.  It  is  urged  on  the  other  side,  that  while  capital, 
by  having  all  the  profits  may  receive  more  than  its  share 
one  year,  yet  the  very  next  year  or  for  a  series  of  years,  it 
may  receive  no  reward  at  all  ;  that  all  the  labor  is  first  paid 
for,  before  capital  receives  any  of  its  pay  ;  and  that  in  times 
of  depression,  while  labor  may  be  forced  to  take  less  pay, 
capital  may  get  nothing  and  yet  it  can  not  be  withdrawn. 
All  this  is  true  ;  and  because  capital  thus  takes  the  chief 
burden  of  risk,  it  may  justly  claim  a  proportionately  larger 
share  of  the  profits.  But  equity  and  good  feeling  and  the 
best  interests  of  all  concerned  will  be  promoted  by  holding 
to  the  distinction  we  contend  for  and  recognizing  labor  as 
also  a  rightful  partner  to  some  extent,  in  both  the  risks 
and  the  profits. 

The  rule  which  assigns  the  entire  profits  to  the,  manager 


CO-OPERATIVE   ASSOCIATIONS.  243 

or  employer,  seems  no  less  objectionable.  The  importance 
of  his  judgment,  tact  and  energy  to  the  success  of  the  busi- 
ness is  obvious,  and  it  is  readily  admitted  that  his  remune- 
ration is  rightfully  made  larger  than  allowed  to  any  other 
of  the  parties,  and  that  its  amount  may  probably  be  made 
to  depend  on  the  actual  profits.  This  consideration,  how- 
ever, hardly  justifies  the  appropriation  of  all  the  profits  to 
his  benefit.  The  laborers  and  the  capitalists  between 
whom  he  stands,  the  middle-man,  agent  of  both,  may  justly 
claim  a  share. 

Cooperative  Associations  have  been  formed  to  secure  a 
more  equitable  distribution  of  profits,  in  the  interest  espe- 
cially of  workmen.  In  these  associations,  a  number  of 
working-men  of  a  particular  branch  of  industry  join  their 
means  and  their  hands  to  carry  on  business  for  them- 
selves, expecting  to  divide  the  entire  proceeds  among 
themselves  by  some  defined  rule  of  equity.  Some  such 
organizations  have  been,  for  a  time,  partially  successful, 
but  they  are  pretty  sure  to  end  in  failure  at  last.  The 
reasons  are  obvious.  It  is  not  easy  to  rule  out  jealousies 
and  harmonize  the  views  of  such  a  company.  A  greater 
obstacle  to  success  is  found  in  the  lack  of  capital  and  man- 
aging ability,  two  essentials  for  the  continued  life  and 
prosperity  of  any  enterprise  amid  the  sharp  competitions 
of  the  business-world.  A  military  campaign  cannot  be 
successfully  conducted  by  the  direction  of  a  majority  vote 
in  mass  meeting.  It  must  have  an  able  leader,  trained  to 
command.  So,  in  business,  especially  where  numbers  are 
to  be  engaged  together,  "  a  Captain  of  Industry  "  is  all 
essenti.il.  Such  a  man,  not  every  association  of  a  hundred 
artisans  however  skilled  and  efficient,  can  furnish.  Mr. 
F.  A.  Walker  says  that  the  sole  object  of  this  form  of  or- 
ganized cooperation  is  to  get  rid  of  •'  the  entrepeneur,"  and 
divide  his  proper  remuneration.  This  means  only  that  the 
laborers  are  trying  to  appropriate  all  the  profits  to  them- 


246  DISTRIBUTION". 

selves,  which  involves,  essentially  the  same  mistake  as  ap- 
peared in  the  other  cases. 

For  a  fair  distribution  of  Profits,  there  must  be  a  full 
recognition  of  that  Partnership  which  our  science  presents 
as  an  elementary  principle  of  productive  industry.  Ke- 
solvingthis  partnership  by  functions,  there  are  three  mem- 
bers, the  Capital,  the  Executive  capacity,  and  the  Labor. 
Each  is  entitled  to  a  share  in  the  fruits  of  their  coopera- 
tion. We  may  not  say  an  equal  share  ;  because,  in  every 
case,  as  we  have  seen,  capital  takes  the  greater  risk  and  is 
liable  to  the  heaviest  losses,  and  it  is  fair  that  this  chance 
of  greater  loss  should  be  balanced  by  a  chance  of  greater  gain. 
So,  too,  in  every  case,  the  amount  of  profits  is  due  most  of 
all  to  the  executive  wisdom  and  energy  of  the  manager, 
and  he  is  entitled  to  a  proportionately  larger  share  in  the 
returns.  After  due  allowance  for  these,  however,  there  is 
a  share  which  justly  belongs  to  the  labor,  and  should  be 
distributed  among  those  who  make  up  this  third  member 
of  the  firm,  according  to  each  one's  merit  and  grade  in  the 
service  rendered. 

It  is  a  hopeful  sign  that  public  attention  is  now  turning 
earnestly  to  consider  plans  for  admitting  workmen  to  a 
participation  in  the  profits  of  manufactures.  Some  inter- 
esting and  successful  experiments  have  been  tried.  We 
adduce  in  illustration  of  the  method,  the  case  of  the 
Messrs.  Brewsters,  carriage  manufacturers  of  New  York  : 

"  The  firm  offered  to  divide  ten  per  cent  of  their  net  profits 
among  their  employes,  in  proportion  to  the  wages  severally  earned 
by  them,  no  charge  to  be  made  by  the  members  of  the  firm'  for 
their  services,  prior  to  the  deduction  of  ten  per  cent,  or  for  inter- 
est on  the  capital  invested  ;  the  business  of  each  year  to  stand  by 
itself  and  be  independent  of  that  of  any  other  year.  For  some  time, 
the  plan  worked  to  the  satisfaction  of  all  parties,  as  high  as 
eleven  thousand  dollars  a  year  being  divided  among  the  hands. 
The  scheme  was  broken  up  only  when,  through  strong  pressure 


WORKMEN    PARTNERS   IN    PROFITS.  247 

from  outside  and  the  general  excitement  of  the  hour,  the  workmen 
•were  carried  into  the  great  strike  of  the  trades  in  New  York." 

There  are  obstacles  in  the  way  of  the  immediate,  gen- 
eral adoption  of  this  measure.  False  ideas  on  the  part  of 
both  workmen  and  their  employers  must  be  corrected, 
mutual  confidence  must  be  established  and  common  usage 
must  be  changed  ;  things  which  cannot  be  accomplished 
in  a  day.  Yet  what  has  been  done  fully  justifies  the  state- 
ments of  Mr.  F.  A.  \Yalker. 

"That  something  of  the  sort  is  practicable,  with  the  exercise 
of  no  more  of  patience,  pains  and  mutual  good  faith  than  it  is 
reasonable  to  expect  of  many  employers  and  many  bodies  of  work- 
men, I  am  greatly  disposed  to  believe.  Many  experiments  and 
probably  much  disappointment  and  some  failures  will  be  required 
to  develop  the  possibilities  of  this  scheme  and  determine  its  best 
working  shape,  yet  in  the  end,  I  see  no  reason  to  doubt  that  such 
a  relation  will  be  introduced  extensively,  with  the  most  beneficial 
/esults." 

Success  in  these  movements  will  involve  as  both  cause 
and  effect,  a  better  understanding  of  the  mutual  relations 
of  the  parties  and  of  the  nature  of  profits  on  the  part  of 
capitalists  and  managers,  broader  views  of  individual  inter- 
ests as  inwoven  with  the  common  interests,  and  on  the 
part  of  workmen,  more  intelligence,  more  thrift,  and  con- 
sequently more  of  genuine  manhood.  Abiding  relief  for 
the  unnatural  and  ruinous  antagonism  of  labor  and  capital 
and  a  satisfactory  solution  of  the  hard  problem  of  economi- 
cal science  respecting  the  practical  relations  of  these  two 
factors  in  production,  are  to  be  found  in  the  adoption  of 
measures  which  aim  to  establish  an  equitable  distribution 
of  profits. 


- 

'    /      *•          ^'         •'      "—"«— •«»-*_-«__<}  x,  1. 1_  L 
j   (    I.    <---<-i_  < 

CHAPTER   XVIII. 

REVENUES  OF  THE   GOVERNMENT. 

A  Problem  of  Political  Economy. — The  prosper- 
ous industry  through  which  men  acquire  wealth  and  the 
well-ordered  condition  of  society  by  which  men  are  made 
secure  in  the  possession  and  enjoyment  of  wealth,  depend 
on  good  government,  efficiently  administered.  Every  indi- 
vidual of  the  state  has  therefore  an  interest  with  regard  to 
his  own  well-being  in  the  maintenance  of  government.  As 
a  compensation  for  the  service  rendered  him,  he  may  then 
properly  be  called  on  to  contribute  a  portion  of  his  wealth 
for  its  support.  These  considerations  bring  this  topic 
necessarily  within  the  scope  of  our  science  ;  and  it  comes 
under  this  division  which  treats  of  Distribution,  because 
the  public  revenues  must  obviously  be  drawn  from  the  pro- 
ceeds of  a  people's  industry.  Furthermore,  since  the  gov- 
ernment represents  a  common  public  interest  superior  to 
any  private  interest,  its  claim  very  properly  takes  precedence 
of  all  others  ;  in  a  sense,  it  has  a  first  lien  on  the  entire 
wealth  of  the  nation. 

Taxation  is  the  means  employed  to  gather  from  a 
people  the  revenues  of  its  government.  To  devise  and 
apply  an  equitable  system  of  taxation  is  one  of  the  pro- 
foundest  problems  of  legislation,  [t  is  a  problem  which 
the  true  statesman  will  study  in  the  light  of  political  econ- 
omy. In  studying  the  problem,  taxation  should  be  regarded 
with  respect  simply  to  its  one  object,  viz.,  the  raising  of  a 


TAXATION.  249 

revenue  for  the  state.  In  despotic  governments,  the  will 
of  the  ruler  determines  arbitrarily  both  the  methods  and 
the  measure  of  taxation.  The  people's  wealth  is  conse- 
quently exposed  to  the  unrestricted  plunder  of  an  army  of 
tax-gatherers,  and  great  inequality  and  oppression  prevail. 
It  is  a  fundamental  principle  of  free  and  just  government 
that  taxes  shall  be  imposed  by  representatives  of  the  people 
alone,  through  proportional  and  reasonable  assessments  on 
all  estates  ;  and  that  they  shall  be  collected  by  uniform  and 
responsible  agencies  acting  under  defined  powers  and  direct 
accountability.  The  one  thing  to  be  aimed  at  is  to  make 
the  burdens  laid  on  the  people  as  light  and  equable  as  pos- 
sible consistently  with  providing  means  ample  for  the 
support  of  the  government.  For  this,  two  things  are 
essential,  first,  fair  and  impartial  assessments,  and  second, 
efficient  and  economical  collection.  A  perfect  result  has 
never  yet  been  attained,  for  human  selfishness  opposes 
many  subtle  and  great  obstacles  ;  but  much  is  gained  by 
steady  contemplation  of  the  philosophical  ideal. 

Adam  Smith's  Maxims. — This  father  of  modern 
political  economy  laid  down  four  rules  of  equitable  taxa- 
tion, as  follows  : 

1.  '•'  The  subjects  of  every  state  ought  to  contribute  toward 
the  support  of  the  government,  as   nearly   as  possible,  in 
proportion  to  their  respective  abilities;  that  is,  in  propor- 
tion to  the  revenue  which  they  respectively  enjoy  under  the 
protection  of  the  state. 

2.  The  tax  which  each  individual  is  bound  to  pay  ought 
to  be  certain  and  not  arbitrary.     The  time  of  payment,  the 
manner  of  payment,  the  quantity  to  be  paid  ought  all  to  be 
clear  and  plain  to  the  contributor  and  to  every  other  person. 

3.  Every  tax  ought  to  be  levied  at  the  time  and  in  the 
manner  in  which  it  is  most  likely  to  be  convenient  for  the 
contributor  to  pay  it. 

11* 


250  DISTKIBUTIOX. 

4.  Every  tax  ought  to  be  so  contrived  as  both  to  take  out 
and  to  keep  out  of  the  pockets  of  the  people  as  little  as  possi- 
ble over  and  above  what  it  brings  into  the  public  treasury 
of  the  state." 

It  may  be  questioned  whether  it  is  true,  as  seems  to  be 
implied  in  the  first  maxim,  that  the  abilities  of  different 
persons  are  measured  in  due  proportion  by  their  respective 
revenues  or  incomes.  It  is  obvious  that  the  ability  of  one 
whose  annual  income  is  five  hundred  dollars,  and  that  of 
another  whose  income  is  fifty  thousand  dollars,  to  pay  a 
tax  of  two  per  cent  on  their  respective  revenues,  are  not 
equal.  Hence,  the  need  of  some  further  discrimination  in 
estimating  abilities.  With  this  exception,  these  maxims 
of  Mr.  Smith  are  believed  to  embody  principles  of  equity. 
They  have  met  with  general  approval,  as  furnishing  a  test 
to  which  various  schemes  of  taxation  may  be  referred. 

Direct  and  Indirect  Taxation. — These  terms  are 
defined  by  Mr.  Mill  thus  :  "  A  direct  tax  is  one  which  is 
demanded  from  the  very  persons  who,  it  is  intended  or  de- 
sired should  pay  it.  Indirect  taxes  are  those  which  are 
demanded  from  one  person,  in  the  expectation  and  inten- 
tion that  he  shall  indemnify  himself  at  the  expense  of 
another."  A  poll-tax,  a  tax  on  land,  live-stock,  tools, 
goods,  etc.,  and  strictly  speaking,  an  income  tax.  are 
examples  of  direct  taxes.  Duties  laid  on  imported  goods 
and  excises  on  articles  of  home-manufacture  are  exam- 
ples of  indirect  taxation  ;  the  importer  or  manufacturer 
who  pavs  the  tax,  adding  the  amount  of  the  tax  to  the 
price  of  the  goods,  to  be  ultimately  paid  by  the  consumers. 
Direct  taxation,  with  fair  assessments  and  honest  returns 
of  property  and  income,  may  be  most  fully  conformed  to 
the  equitable  principles  embodied  in  the  maxims  just 
stated.  But  if  applied  to  all  kinds  of  property,  it  involves 
much  labor  and  expense  in  collection,  and  is  apt  to  prompt 


DIRECT   AND   INDIRECT   TAXATION.  251 

concealment  and  evasion  and  to  provoke  dissatisfaction 
and  complaint  on  the  part  of  tax-payers,  because  they 
know  precisely  when  and  how  much  they  have  to  pay  and 
feel  the  full  force  of  the  burden.  Indirect  taxes,  on  the 
other  hand,  are  more  cheerfully  submitted  to  and  more 
easily  collected,  because  laid  on  the  goods  at  the  port  of 
entry  or  at  the  manufactory,  and  so  distributed  in  small 
quotas  through  the  increased  prices,  that  no  one  thinks  of 
the  tax  he  pays,  when  he  makes  his  purchases.  But  this 
method  violates  nearly  all  of  Mr.  Smith's  maxims.  Under 
it,  the  burden  is  imposed  very  unequally,  each  one's  pro- 
portion being  determined  not  at  all  by  his  ability  but  by 
his  necessities.  Often  a  poor  man,  with  a  large  family  to 
provide  for,  actually  contributes  more  for  the  support  of 
the  government,  than  his  neighbor  with  ten  times  his 
wealth  and  ability.  It  is  only  a  partial  relief  to  this  in- 
equality which  is  gained  by  a  discrimination  that  lays 
heavier  duties  and  excises  on  luxuries  than  on  the  neces- 
saries of  life  ;  for  the  proportion  which  each  bears  of  the 
burden  is  still  determined  not  by  his  ability,  but  by  what 
he  consumes.  Hence,  direct  taxes  if  equally  imposed,  are 
commonly  more  just ;  that  is,  they  derive  the  support  of 
government  from  individuals  more  in  proportion  to  their 
respective  abilities,  and  to  the  degree  of  benefit  which  each 
derives  from  the  government. 

In  favor  of  direct  taxation,  it  may  also  be  added  that 
it  is  decidedly  more  in  harmony  with  the  genius  of  a 
republican  or  representative  government.  Such  a  govern- 
ment proceeds  upon  the  principle  that  the  people  are  the 
fountain  of  power,  and  are  competent  to  govern  them- 
selves. Now,  such  a  government  ought  not  surely  to  act 
upon  the  directly  opposite  principle,  that  the  people  may 
not  know  what  they  pay,  or  when  or  how  they  pay.  They 
are  the  party  from  which  especially,  nothing  of  this  sort 
should  be  concealed.  They  should  know  wliat  and  how 


252  DISTRIBUTION. 

mucli  they  contribute  ;  and  also  in  what  manner  whatever 
they  contribute  is  expended.  It  is  in  this  knowledge  and 
in  the  judicious  use  of  it,  that  their  safety  consists. 
Therefore  the  consideration  so  frequently  urged  in  favor 
of  indirect  taxation,  that  the  people  do  not  feel  it,  is  one 
of  the  strongest  arguments  against  it.  The  more  a  people 
feel  taxation,  and  the  more  jealously  they  watch  over  the 
public  expenditure,  the  better  it  is  for  them  and  for  their 
rulers.  Yet,  until  there  is  attained  a  higher  standard  of 
intelligence,  honesty  and  patriotism  than  has  been  reached 
by  any  people  hitherto,  governments  will  still  be  compelled 
to  employ  this  more  convenient  and  easy  method  of  rais- 
ing their  revenues. 

In  most  countries  it  is  now  adopted  as  a  rule  of  indi- 
rect taxation  that  those  commodities,  such  as  intoxicating 
liquors,  the  consumption  of  which  is  regarded  as  injurious, 
shall  be  most  heavily  taxed.  Experience  has  shown  that 
the  consumption  of  such  articles  is  not  materially  dimin- 
ished by  the  tax.  As  a  check  on  immorality,  the  measure 
is  therefore  of  little  avail ;  but  as  a  source  of  revenue,  it 
is  found  to  yield  large  results.  The  greater  part  of  the 
revenue  of  the  British  government  from  customs,  is  de- 
rived from  duties  on  tobacco  and  intoxicating  liquors. 
When  however,  the  duty  or  excise  is  so  high  as  to  raise 
the  price  of  the  article  very  much  above  the  cost  of  pro- 
duction, the  temptation  to  smuggling  and  illicit  manu- 
facture is  very  strong,  the  expense  of  maintaining  the  law 
and  collecting  the  tax  is  immensely  increased,  and  corrup- 
tion, more  or  less,  on  the  part  of  revenue  officers  is  almost 
inevitable.  This  folly  was  sndly  illustrated,  when  the 
United  States  government  laid  a  tax  of  two  dollars  per 
gallon  on  distilled  spirits  which  could  be  manufactured  for 
twenty  cents  a  gallon.  The  revenues  from  this  source, 
instead  of  being  increased,  were  greatly  reduced  by  this 
over-taxation,  the  price  of  the  article  in  the  market  was 


TARIFFS.  2.J.J 

steadily  less  than  the  amount  of  the  tax,  and  all  over  the 
country,  revenue  officers  were  corrupted,  the  members  of 
*;  whisky-rings"  made  enormous  gains,  under  cover  of  the 
law  which  they  evaded  and  defied,  and  the  public  senti- 
ment was  generally  demoralized. 

Tariffs. — This  term  signifies  strictly  the  lists  of  im- 
ported articles  which  are  subject  to  tax,  with  the  duties 
laid  on  each.  The  word  is  quite  commonly  used  to  em- 
brace also  the  legislative  action  on  the  subject.  Protective 
tariffs  so-called,  designed  to  encourage  certain  kinds  of 
home  manufactures  will  be  considered  in  another  place. 
The  topic  is  here  to  be  noticed  only  as  a  revenue  measure, 
one  form  of  indirect  taxation.  The  duties  on  all  articles 
included  in  the  tariff  are  paid  by  the  importer,  at  the  port 
of  entry,  before  he  can  take  possession  of  his  goods. 

Duties  are  imposed  in  two  forms,  specific  and  ad-valorem. 
Specijic  duties  are  certain  sums  charged  on  articles,  by  the 
piece,  the  pound,  the  yard,  the  gallon,  etc.,  without  refer- 
ence to  the  value.  Ad-valorem  duties  are  indicated  by  a 
defined  percentage  of  the  value  of  each  class  of  goods,  as 
named  in  the  importer's  invoice.  Each  of  these  forms  has 
its  advantage  and  its  difficulties.  Specific  duties  are  sim- 
ple and  clear.  The  collector  needs  to  know  only  the 
quantity  of  the  goods,  and  easily  reckons  the  duty  to  be 
paid.  But  the  tax  in  this  case  is  very  unequal.  Suppose 
the  duty  laid  on  tea  to  be  ten  cents  per  pound.  The  tea 
which  the  poor  consume,  costs  thirty  cents  a  pound  ;  the 
better  quality  used  by  the  rich  costs  a  dollar  or  more. 
This  involves  a  tax  in  the  one  case,  of  thirty-three  and 
one-third  per  cent,  and  in  the  other  of  only  ten  per  cent. 
Ad-valorem  duties  lay  the  taxes  more  equally,  but  involve 
more  difficulty  in  the  collection,  since  the  value  as  well  as 
the  quality  of  the  goods  must  be  ascertained.  Hence  a 
temptation  on  the  part  of  the  importer  to  present  a  false 


254  DISTRIBUTION". 

invoice.  To  counteract  this,  the  government  must  employ 
a,  host  of  experts  to  examine  and  estimate  the  values  of 
goods.  These  often  corne  into  altercations  with  the  im- 
porters, and  sometimes  refuse  to  recognize  an  invoice  that 
is  honest  and  true.  In  American  tariffs,  sometimes  the  one 
principle  and  sometimes  the  other  has  prevailed.  Some- 
times, as  in  the  tariff  now  in  force,  both  are  combined, 
producing  intricate  and  vexatious  complications,  and 
greatly  enhancing  the  expense  of  collections.  There  can 
be  no  doubt  that  on  the  whole,  both  for  the  people  and  for 
the  government,  the  best  tariff  is  one  which  lays  a  specific 
duty,  of  moderate  amount,  on  a  comparatively  short  list  of 
articles,  which  are  not  produced  at  home,  and  must  there- 
fore be  imported  from  abroad. 

American  Taxation. — In  the  United  States  there 
are  two  general  systems  of  taxation — that  instituted 
by  the  National  government,  and  that  instituted  by  the 
several  State  governments.  The  latter  includes  all  local 
taxes  imposed  under  authority  of  each  state  by  counties, 
cities,  towns  and  school-districts.  The  national  constitu- 
tion authorizes  Congress  to  impose  taxes  in  every  form, 
subject  only  to  the  qualification  that  direct  taxes  must  be 
apportioned  to  the  several  states  according  to  their  respec- 
tive populations,  and  that  all  duties,  imposts  and  excises 
shall  be  uniform  throughout  the  United  States.  It  ex- 
pressly forbids  any  state  to  lay  any  imposts  or  duties  on 
imports  or  exports,  except  for  executing  its  inspection 
laws.  In  consequence  of  these  constitutional  provisions, 
the  taxes  paid  by  the  national  government  have  been 
hitherto,  with  only  slight  exceptions,  indirect,  while  the 
state  governments  rely  almost  exclusively  on  direct  taxes. 
The  two  systems  thus  combine  two  methods,  in  a  way 
which  secures  the  advantages  of  each,  with  as  little  draw- 
back of  disadvantage  as  is  possible. 


NATIONAL  TAXATION.  255 

The  proceeds  of  duties  on  imports  proved  sufficient  to 
meet  the  needs  of  the  general  government,  for  the  most 
part,  until  the  recent  war  of  the  Rebellion.  To  provide 
for  the  heavy  expenses  of  that  war,  and  for  the  consequent 
debt,  resort  was  had  to  four  other  forms  of  taxation,  which 
deserve  a  brief  notice. 

a.  Excises.     These  are  imposts  laid  by  Congress  on  cer- 
tain specified  articles  of  domestic  manufacture.     They  are 
collected  by  the  sale  of  stamps  to  be  affixed  by  the  manufac- 
turer or  by  an  officer  of  government,  before  the  goods  are 
thrown  upon  the  market.     The  amount  of  the  excise  is  in 
each  case  added  to  the  price  of  the  article,  and  thus  the 
tax  is  paid  by  consumers.     Such  a  tax  must  work  to  the 
disadvantage   of    home-production,   unless   corresponding 
duties  are  imposed  on  the  same  articles  when  imported. 
It  involves  the  inequality  which  we  have  seen  to  be  inci- 
dent to  all  indirect  taxes.     It  also  involves  great  expense 
in  collection,  since  the  government  must  keep  agents  in 
every  part  of  the  country,  watching  the  manufacturing 
establishments  and  the  markets,  to  guard  against  evasion 
of  the  tax.     The  number  of  articles  thus  taxed  was  quite 
large   at   first,    but   now,   liquors   and   tobacco  yield   the 
greater  part  of  the  internal  revenue  from  this  source. 

b.  Stamps.     Tins  is  a  tax  levied  by  requiring  a  stamp 
representing  a  small  value,  to  be  attached  to  various  instru- 
ments and  forms  of  business,  in  order  to  give  them  legal 
force.     The  expense  of   the  postal  service  is  nearly  pro- 
vided for  by  this  means,  at  a  very  slight  charge  to  the  peo- 
ple.    This  method  is  also  applied  to  bank-checks,  notes, 
deeds,  mortgages,  contracts,  wills,  etc.     Such  a  tax  touches 
directly  the  wealth  of  the  country  in  transition,  and  just 
at  the  points  too,  where  it  needs  government  protection  to 
give  it  a  certain  kind  of  security.     It  conies  upon  those 
best  able  to  bear  the  burden.     It  accords  with  Mr.  Smith's 
fourth  maxim,  for  the  cost  of  collection  is  very  light  and 


256  DISTRIBUTION". 

nearly  the  entire  amount  taken  from  the  people's  pockets 
goes  into  the  government  treasury.  When  first  introduced, 
it  seems  a  little  vexatious,  and  it  takes  time  for  a  people 
to  become  habituated  to  it,  but  once  fairly  instituted,  it  is 
hardly  felt,  and  is  found  an  economical  and  equitable 
mode  of  distributing  the  public  burdens.  Great  Britain 
employs  it  very  successfully,  raising  over  fifty  millions 
each  year  from  the  sale  of  stamps,  to  be  thus  applied.  It 
is  to  be  regretted  that  our  government  almost  entirely 
abandoned  this  measure,  just  when  it  was  fairly  inaugura- 
ted after  the  war. 

c.  Licenses.     This  is  a  form  of  tax  quite  akin  to  that 
last  named.     It  is  imposed  by  requiring  men  to  buy  of  the 
government,  at  specified  rates,  certificates  authorizing  them 
to  engage  in  certain  kinds  of  business.     It  has  been  em- 
ployed by  both  the  Federal  government  and  by  state  gov- 
ernments.    It   is   objectionable   because   it   discriminates 
unequally  among  industrial  occupations.     It  is  urged  in 
its  favor  that  it  draws  from  certain  parties,  such  as  ped- 
dlers, insurance  companies  outside  of  the  state  and  somr 
professional  men,   a  just  return    for  the  advantage  thef 
derive   from   the   protection    of   the   government,    which 
return  conld  not  be  secured  in  any  other  way.     The  prin- 
ciple as  applied  to  occupations  regarded  as  mischievous, 
such   as   dram-selling,    has   another   aim   than  to  raise  a 
revenue,  that  is,  to  restrict  an  evil.     In  that  application, 
it  has  to  do  with  the  morals  of  society,  as  much  as  with  its 
economies. 

d.  Income  tax.     This  is  a  form  of  direct  tax,  levied  by 
imposing  a  certain  percentage  upon  the  annual  incomes  of 
individual  citizens.     According  to  Mr.   Mill's  definition, 
this  is  certainly  a  direct  tax  ;  although  the  American  Con- 
gress when  instituting  it,  declared   it  not  a  direct  tax  in 
the  sense  of  the  term  used  in  the  constitution  with  respect 
to   the   apportionment  of   direct  taxes  among  the  states. 


INCOME  TAX.  25? 

Theoretically,  this  is  the  most  equitable  of  all  taxes,  since 
it  touches  men  exactly  according  to  their  abilities.  But 
as  we  have  seen,  if  the  percentage  is  uniform  for  all  in- 
comes, it  involves  an  inequality  which  bears  heavily  on 
those  whose  incomes  are  small.  To  relieve  this,  two  meas- 
ures are  employed.  The  first  is  to  exempt  all  incomes 
below  a  specified  amount.  The  other  is  to  establish  two 
or  three  grades  of  income,  and  make  the  percentage 
greater  on  the  larger  incomes.  The  chief  objection  to  an. 
income-tax  is  the  difficulty,  almost  impossibility  of  ascer- 
taining men's  real  incomes  ;  partly  because  many  keep  no 
accurate  accounts,  and  partly  because  few,  comparatively 
will  make  truthful  report  of  their  incomes.  Inquisitorial 
measures  to  discover  actual  incomes  are  exceedingly  offen- 
sive. Moreover,  as  in  the  case  of  excises,  the  labor  and 
cost  of  collecting  this  tax  involves  a  serious  drawback  on 
the  public  treasury.  Notwithstanding  all  this,  the  British 
government  has  employed  this  method  of  taxation  for 
forty-five  years,  with  such  success  that  nearly  one-sixth  of 
the  annual  revenue  of  the  kingdom  is  estimated  to  come 
from  this  source.  The  United  States  collected  an  income 
tax  for  ten  years,  from  1863  to  1872  inclusive.  The  lar- 
gest amount  raised  iu  any  one  year,  by  this  means,  was 
about  sixty-one  millions  in  18GG,  from  four  hundred  and 
sixty  thousand  one  hundred  and  seventy  persons  assessed. 
Actual  experience  under  the  law  tended  to  relieve  difficul- 
ties and  objections.  When  most  efficiently  carried  out, 
concealment  and  dishonesty  were  not  probably  greater 
under  this  form  of  tax  than  are  practised  continually 
under  the  attempts  of  the  states  to  levy  taxes  on  miscella- 
neous personal  property.  In  both  cases  the  needed  relief 
must  come  from  the  moral  culture  which  forms  good  con- 
science*. 

State  Taxation. — Under  state  authority,  all  taxes 


258  DISTRIBUTION. 

are  direct,  laid  upon  persons  by  poll-taxes,  upon  property 
by  assessment  and  upon  certain  kinds  of  business  by 
licenses.  The  poll-tax  is  ordinarily  a  small  amount  levied 
upon  every  male  citizen  who  has  reached  his  majority.  It 
recognizes  the  protection  which  the  government  extends  to 
persons  as  well  as  to  property.  It  is  made  in  theory,  a 
condition  of  the  electoral  franchise  ;  he  who  pays  the  tax 
and  votes  being  regarded  as  the  head  of  a  family,  in  both 
acts,  representing  a  household.  It  is  found  difficult  and 
expensive  to  collect  this  tax  from  all,  and  hence  the  theory 
is  seldom  carried  out.  Some  of  the  states  lay  no  poll-tax. 

Taxes  on  property  are  imposed  in  all  states  by  essen- 
tially the  same  method.  The  state  authority,  by  statute, 
requires  the  election  or  appointment  of  assessors  in  everv 
town  and  city,  who  make  a  valuation  of  all  property  which 
the  law  subjects  to  taxation.  Real  estate,  and  articles  open 
to  their  inspection,  such  as  live-stock,  vehicles,  etc.,  are 
estimated  by  the  assessors.  Other  personal  property  is 
returned  in  prepared  lists  by  the  owners,  who  may  be 
required  to  make  oath  to  the  completeness  and  truthful- 
ness of  their  returns. 

In  some  states,  however,  the  assessor  sets  down  his  es- 
timate of  each  one's  personal  property,  and  if  the  taxpayer 
thinks  the  estimate  too  high,  he  is  permitted  "  to  swear  it 
down, "as  the  phrase  is,  that  is,  to  declare  under  oath  what 
is  the  true  amount  of  his  personal  property  after  deducting 
his  "indebted  ness. 

Heal  estate  is  commonly  set  down  at  from  twenty-five 
to  thirty  per  cent  less  than  its  market  value.  Since  as- 
sessors in  different  places  may  adopt  different  standards 
of  valuation,  the  original  assessments  are  in  most  of  the 
states  referred  to  boards  of  equalization  appointed  for 
each  county,  and  their  judgment  is  subsequently  re- 
viewed by  a  general  board  for  the  state.  Upon  the  ba-- 
sis  of  the  valuation  of  property  so  determined,  the  taxes 


STATE  TAXATION-  259 

for  state  purposes  are  apportioned  to  each  county,  city 
and  town.  By  general  statute,  or  by  special  city  char- 
ters, each  county,  city,  town  and  school-district  is  au- 
thorized to  levy  taxes  for  local  purposes.  These  also  are 
apportioned  on  the  basis  of  the  state  valuation,  except  in 
case  of  certain  improvements  in  cities,  such  as  opening, 
paving  and  lighting  streets,  which  are  charged  upon  the 
adjoining  property  in  proportion  to  the  benefit  conferred. 
Generally,  all  these  taxes  both  for  state  and  local  purposes 
are  collected  in  each  town  or  city  ward,  at  one  time,  by 
one  collector,  who  is  furnished  with  a  tax-list  covering 
all. 

If  other  means  fail,  goods  may  be  levied  on  to  secure 
the  taxes,  and  according  to  prescribed  forms  of  law,  lands 
may  be  sold  for  delinquent  taxes,  the  title  thus  given,  be- 
ing made  complete  and  valid  after  a  certain  period  allowed 
the  original  owner  for  redemption. 

[n  most  of  the  states,  local  taxes  are  adjusted  on  the 
principle  generally  admitted  that  equitable  taxation  re- 
quires property  of  every  kind  to  be  assessed.  In  actual  ex- 
perience however,  property  in  the  form  of  real-estate  bears 
by  far  the  larger  share  of  the  burden.  Personal  property 
can  be  easily  concealed  or  removed  by  those  who  wish  to 
evade  their  share  of  contribution  to  the  public  weal.  On 
this  subject,  tiie  prevalent  moral  sentiment  is  low  and 
consciences  are  weak  to  resist  the  strong  temptation  to 
make  false  returns  and  even  to  commit  perjury,  when 
detection  is  almost  impossible.  The  difficulty  of  attaining 
a  perfect  result  is  aggravated  by  the  complexity  of  our 
government.  Property  in  railways,  banks,  etc.,  being 
within  the  jurisdiction  of  one  state,  while  the  owner  resides 
in  another,  involves  peculiar  difficulties.  These  and  other 
like  considerations  have  occasioned  much  earnest  discus- 
sion, on  the  part  of  economists,  lawyers  and  statesman, 
respecting  the  property  on  which  taxes  should  be  imposed. 


260  DISTRIBUTION. 

We  may  not  here  enter  at  length  into  these  discussions, 
but  one  question  which  especially  involves  some  principles 
of  our  science  deserves  some  notice. 

Are  Evidences  of  Debt,  Property,  on  which 
taxes  should  be  levied  ?  In  defining  wealth,  we  showed 
that  notes,  bonds,  mortgages  and  the  like  are  not,  of  them- 
selves, any  part  of  the  general  wealth.  They  indicated  only 
what  the  lawyers  call  "an  inchoate  title"  to  possession,  a 
mode  in  which  some  real  wealth  is  distributed.  They  are 
symbols,  not  substance,  whose  multiplication  makes  no  in- 
crease of  real  wealth.  Suppose  A.  B.  holds  his  neighbor's 
note  for  two  thousand  dollars,  secured  by  mortgage  on  his 
farm  worth  four  thousand.  The  property  is  one,  the 
farm.  The  note  and  mortgage  only  indicate  that  A.  B. 
has  a  lien  on  that  property  for  one  half  its  value.  The 
loan  made  and  the  security  given  have  added  nothing  to 
that  value.  That  property  is  rightfully  subject  to  taxa- 
tion. Who  shall  pay  the  tax  9  Strictest  equity  might 
admit  that  each  of  the  parties  should  pay  a  half ;  and  that 
might  be  established  as  the  rule.  But  in  the  very  terms 
of  the  mortgage,  the  owner  of  the  farm  engages  to  pay  all 
taxes  that  may  be  levied  on  the  land,  and  this  is  a  part  of 
the  contract,  the  interest  to  be  paid  on  the  amount  bor- 
rowed, being  adjusted  to  that  usage.  Now,  if  the  owner 
of  the  farm  is  taxed  for  its  full  value,  and  A.  B.  is  also 
taxed  on  the  mortgage  he  holds,  there  is  a  double  taxation 
on  two  thousand  dollars.  The  fact  is  obvious  and  cannot 
be  controverted.  Where  this  rule  prevails,  there  is  evi- 
dently an  obstruction  to  the  free  flow  of  capital,  which 
works  disadvantage  to  all  economical  interests. 

The  case  of  a  note  given  without  security  is  essentially 
the  same.  Suppose  for  instance,  that  C.  I),  sells  his 
neighbor  a  horse  for  one  hundred  dollars  and  takes  in  pay- 
ment a  note  for  the  amount,  payable  at  the  end  of  six 


DOUBLE   TAXATION.  2G1 

months,  without  security,  depending  on  the  man's  ability 
to  pay  out  of  the  avails  of  his  industry,  in  the  meantime. 
Here  evidently,  there  is  only  one  item  of  property,  that  is 
the  horse.  To  lay  a  tax  on  the  horse  for  its  new  owner  to 
pay,  and  to  tax  C.  D.  on  the  note  he  holds,  is  evidently 
doubling  the  taxation.  When  the  note  is  paid,  the  horse 
being  in  good  condition,  another  property  appears  in  the 
money  received  by  C.  D.,  and  on  that  he  may  properly  be 
taxed.  To  vary  the  case  a  little,  suppose  that  instead  of  a 
note  payable  in  money,  the  purchaser  of  the  horse,  being  a 
wagon-maker,  gives  an  obligation  to  build  for  C.  D.  a 
wagon  worth  one  hundred  dollars,  to  be  finished  and  deliv- 
ered at  the  end  of  six  months.  Evidently,  the  horse  is, 
but  the  wagon  is  not  in  existence  when  the  contract  is 
made.  When  the  obligation  matures  and  is  fulfilled  by 
the  delivery  of  the  wagon,  there  are  two  items  of  property, 
both  rightfully  taxable.  But  the  promise  pending  has  in 
it  nothing  real,  nothing  taxable.  The  principle  runs 
through  the  whole  system  of  credit.  Prosperous  industry 
is  continually  creating  new  items  of  property  but  the  credit 
that  runs  in  divers  forms  through  all  the  ramifications  of 
business,  of  itself  creates  nothing,  and  has  not  that  "physi- 
cal actuality"  which  is  essential  to  the  idea  of  property. 

A  case  involving  this  question  and  also  the  question  of 
state  jurisdiction  respecting  taxes  has  recently  occupied 
the  attention  of  the  Supreme  Court  of  Errors  of  the  State 
of  Connecticut,  and  is  now,  on  appeal,  before  the  Supreme 
Court  of  the  United  States.  Mr.  K.,  a  citizen  of  Connec- 
ticut, had  loaned  money  through  an  agent,  a  citizen  of  Illi- 
nois, on  bonds  secured  by  deeds  of  trust,  on  real  estate,  in 
the  city  of  Chicago.  Each  deed  of  trust  provided  that 
the  borrower  should  pay  all  taxes  assessed  on  the  property 
without  abatement  on  account  of  the  mortgage  lien,  and 
the  taxes  on  the  entire  .property  were  accordingly  paid 
under  the  laws  of  Illinois.  The  Connecticut  collector 


262  DISTRIBUTION. 

added  the  amount  of  the  loan  to  Mr.  K.'s  tax  list  in  that 
state,  and  when  payment  of  the  tax  was  refused,  proceeded 
to  levy  his  tax- warrants  on  real  estate  belonging  to  Mr.  K. 
He  brought  the  case  before  the  court,  by  petition  for  an 
injunction.  A  majority  of  the  judges  on  the  bench  decided 
that  the  bonds  were  taxable,  and  that  it  came  within  the 
jurisdiction  of  Connecticut  to  lay  and  collect  this  double 
tax.  Judge  L.  S.  Foster,  however,  gave  a  dissenting 
opinion.  His  judgment  on  the  question  now  before  us  is 
thus  clearly  and  forcibly  expressed.  "  Property  and  a 
debt,  (considered  as  a  representative  of  the  property 
pledged  for  its  payment,)  constitute  but  one  subject  for  the 
purpose  of  taxation.  The  tax  being  paid  on  the  property, 
without  diminution  on  account  of  the  debt,  nothing 
remains  to  be  taxed.  The  debt  indeed,  aside  from  the 
property  behind  it,  and  of  which  it  is  the  representative,  is 
simply  worthless."  We  believe  that  this  opinion  has  all  the 
force  of  an  axiom  of  political  economy.  We  trust  that 
the  court  of  last  appeal  will  sanction  this  opinion  and  thus 
hasten  the  dav  when  it  shall  be  generally  acknowledged 

«/  o  v  O 

and  applied  in  the  imposition  of  taxes,  to  the  correction  of 
much  unsound  and  mischievous  legislation,  and  to  the 
promotion  of  equity  and  morality. 


CHAPTER   XIX. 

FOURTH   DIVISION.— EXCHANGE. 

The  Nature  of  Exchange. — In  a  broad,  general 
view,  Exchange  is  a  part  of  the  machinery  of  society  for  the 
transfer  of  wealth  from  producers  to  consumers.  It  is  a 
very  complicated  piece  of  machinery,  as  clearly  appears  if 
one  will  undertake  to  trace  the  cotton  which  enters  into 
the  structure  of  the  shirt  he  wears,  back  to  the  field  on 
which  it  grew.  It  is  a  machinery  whose  range  of  opera- 
tions is  co-extensive  with  the  surface  of  our  globe,  as  will 
be  seen,  if  one  will  but  consider  how  many  parts  of  the 
world  are  made  to  contribute  to  the  sum  of  daily  comforts 
with  which  his  table  and  his  home  are  furnished.  Hence, 
in  the  science  of  Political  Economy,  it  holds  a  place  of 
highest  importance  ;  so  that  it  has  been  proposed  to  sub- 
stitute as  a  title  for  the  science,  the  term  Catallactics  or 
the  science  of  Exchanges. 

The  general  arena  of  exchange  is  called  the  Market, 
and  in  all  the  processes  of  production,  the  market  is  the 
object  most  nearly  and  directly  contemplated.  There, 
whatever  is  produced,  except  the  very  little  of  his  own  pro- 
ducts which  a  man  consumes,  is  first  to  be  disposed  of  ;- 
and  in  every  step  of  the  process,  the  question  is  before  the 
producer's  mind,  what  will  this  article  bring  in  the  mar- 
ket ?  This  will  be  determined  by  the  answer  given  to  two 
other  questions.  First,  What  want  or  desire  of  man  will 
this  article  gratify  and  how  intense  'is  that  desire?  and 
Second,  What  outlay  of  labor  and  capital  is  requisite  to 


2G4  EXCHANGE. 

produce  tit  is  article?  Thus,  on  the  broad  field  of  the 
world's  exchanges,  commodities,  in  almost  infinite  variety, 
meet  and  mingle,  each  marked  with  a  sign  of  Value  which 
is  a  simple  exponent  of  these  two  elements,  utility,  or  de- 
sirableness and  cost. 

More  specifically,  we  may  say.  Exchange  is  a  transac- 
ticn  in  which  two  parties  voluntarily  transfer  to  each  other 
the  right  of  property  in  certain  items  of  wealth,  which  are 
regarded  as  equivalents.  This  transfer  must  be  voluntary 
by  both  parties,  else  it  involves  robbery.  If  without  the 
right  of  property,  anything  is  given  in  exchange,  it  is 
fraud.  If  one  gives  in  exchange  a  horse  which  does  not 
belong  to  him,  he  confers  no  right  of  property,  for  he  has 
none  to  confer,  since  the  real  owner  may,  at  any  time, 
reclaim  the  animal.  It  is  often  said  that  exchange  may  be 
either  of  commodity  for  commodity,  as  when  one  gives  a 
table  for  a  pair  of  boots  ;  or  of  commodity  for  labor,  as 
when  one  gives  fifty  pounds  of  flour  for  a  day's  work  at 
mowing ;  or  of  labor  for  labor,  as  when  a  mason  gives  a 
day's  work  to  a  carpenter  on  condition  that  the  carpenter 
shall  on  call,  give  a  day?s  work  at  his  trade,  in  return. 
This  is  proper  enough  as  indicating  in  each  instance,  the 
precise  form  of  the  transaction.  But  in  reality,  the  labor 
is  not  ever,  itself  the  thing  contemplated,  but  the  value, 
in  some  form  of  wealth,  which  is  the  product  of  the  labor. 
In  discussing  the  principles  of  distribution,  we  saw  that 
even  when  wages  are  paid  for  labor,  the  employer  has  his 
eye  always  on  the  value  to  be  produced,  though  it  may  be 
that  several  kinds  of  labor  must  be  combined  before  the 
value  appears  in  a  form  to  be  exchanged. 

Value  is  thus  the  central  term  of  this  branch  of  our 
science.  Let  its  definition,  as  given  in  the  second  chapter, 
be  here  distinctly  recalled. 

Value  is  purchasing  power,  or  that  quality  in  an  ob- 


VALUE.  265 

jcct    which    gives   it  power  to   command    other   objects 
in  exchange. 

Value  is  alicays  a  relative  term,  and  indicates  not  an 
absolute  quality  of  an  object,  but  a  power  revealed  by  a 
comparison  of  it  with  another  object. 

Value  may  be  determined  by  comparison  betiveen  any 
two  objects,  and  must  not  be  confounded  with  price  which 
makes  money  the  one  thing  with  which  every  thing  else 
must  be  compared. 

Value  implies  utility,  or  adaptedness  to  gratify  desire, 
but  is  to  be  distinguished  from  it,  since  many  things  of  the 
highest  utility  such  as  the  air  we  breathe,  have  no  value, 
because  they  are  not  the  fruit  of  labor,  and  cannot  be  ex- 
clusively appropriated. 

Hence,  us  was  just  stated,  Value  is  a  simple  exponent 
of  the  two  elements,  utility  and  cost.  These  terms  respect- 
ively define  the  limits  of  value.  The  maximum  limit  of 
value  in  an  object,  is  defined  by  its  utility  or  desirableness. 
The  minimum  limit  of  value  in  an  object,  is  fixed  by  its 
cost.  Objects  presented  for  exchange  are  always  primarily 
compared  with  respect  to  these  two  considerations. 

Between  these  two  extreme  limits  however,  there  is 
room  for  considerable  variation  of  value  under  the  law  of 
supply  and  demand.  By  demand  is  meant  the  extent  of 
desire  for  any  article.  Supply  expresses  the  quantity  of 
the  article  in  the  market,  ready  to  meet  that  desire.  When 
demand  is  great  in  proportion  to  stipplv,  value  is  enhanced. 
When  supply  is  great  in  proportion  to  demand,  value  is 
reduced.  The  law  is  expressed  in  a  simple  formula,  appli- 
cable to  all  things  that  can  be  exchanged,  thus,  Value  rises 
directly  as  the  demand,  inversely  as  the  supply.  Hence  in 
all  transactions  of  exchange,  the  state  of  the  market  needs 
to  be  carefully  considered.  There,  free  competition  tends 
to  produce  an  equilibrium  between  supply  and  demand. 
When  the  supply  of  any  article  is  excessive,  its  value  sinks 


266  EXCHANGE. 

so  that  it  will  not  command  an  equivalent  for  the  labor 
and  capital  necessary  to  produce  it ;  the  production  of  it 
is  therefore  curtailed  till  the  supply  is  reduce:!  to  a  level 
with  the  demand.  When  on  the  other  hand,  the  demand 
for  an  article  is  excessive,  the  consequent  rise  in  value 
makes  labor  and  capital  in  that  form  of  industry  more 
remunerative  than  ordinary,  and  thus  its  production  is 
stimulated  till  the  supply  is  brought  up  to  a  level  with  the 
demand.  To  express  the  expense  of  labor  and  capital  in- 
volved in  the  production  of  any  commodity,  the  term  Cost 
is  employed.  Competition  tends  to  make  cost  the  general 
standard  of  value.  Hence  we  have  for  the  rates  of  ex- 
change, or  the  value  of  articles  transferred,  this  general 
formula. 

Value=cost  +  or — the  effect  of  the  ratio  of  demand  to 
supply. 

The  effect  produced  by  variation  of  the  ratio  between 
demand  and  supply  will  be  greater  or  less  according  to 
several  circumstances. 

a.  The  Durability  of  the  commodity.     An  increased 
supply  of  articles,  such  as  fresh  fruit  and  fish,  which  are 
quickly  perishable,  causes  a  great  reduction  of  value.     On 
the  contrary,  the  market  value  of  a  durable  article  like 
iron  ware  and  cloth,  is  but  slightly  affected  by  increased 
supply. 

b.  The  Ease  or  Difficulty  of  Increasing   the  Supply. 
Manufactured  articles  can  generally  be  produced  easily  and 
quickly,    after   the   facilities   are   once   established.     The 
farmer's  crops  come  in  but  once  in  a  year.     Hence  a  short 
supply  of  wheat  or  potatoes  raises  the  value  of  those  arti- 
cles much  more  than  a  short  supply  of  woolen  goods  or 
shoes  advances  the  value  of  those  articles. 

c.  The  character  of  the  article  as  a  Necessity  or  a 
Luxury.     Under  the  pressure  of  scarcity,  men  will  dispense 
with  luxuries,  rather  than  pay  their  enhanced  price.     Such 


FUNDAMENTAL   PRINCIPLES.  26? 

articles  as  bread  and  fuel,  they  must  have  at  any  price. 
In  the  first  case,  the  demand  declines  as  the  value  rises  on 
account  of  a  diminished  supply,  and  the  ratio  adjusts 
itself.  In  the  other  case,  the  demand  is  intensified  as 
the  value  is  advanced  by  scarcity,  because  the  limits  of 
man's  power  to  endure  hunger  and  cold  admit  of  but  little 
room  for  any  adjustment,  and  "  all  that  a  man  hath  will 
he  give  for  his  life." 

d.  The  relation  of  the  article  to  incoming  or  outgoing 
Fashion.  The  freaks  and  the  tyranny  of  fashion  are  pro- 
verbial. In  highly  civilized  society,  her  sway  is  undispu- 
ted. Those  things  which  are  made  to  meet  her  demands 
are  called  "fancy-goods."  Both  the  producer  of  these  arti- 
cles and  the  dealer  in  them  must  study  carefully  her 
changing  moods.  The  demand  for  articles  conformed  to 
the  latest  style  is  exceedingly  intense  and  gives  them  a 
value  far  above  cost ;  but  the  reaction  is  apt  to  come  sud- 
denly, following  no  definable  law.  An  over  supply  of 
goods  that  are  just  going  out  of  fashion  can  be  exchanged 
only  at  a  value  greatly  below  cost,  though  their  utility, 
as  means  of  comfort,  may  not  be  in  the  least  impaired. 
The  successful  tradesman  sees  to  it  that  his  gains  at  the 
hour  of  flood-tide  are  sufficient  to  compensate  the  loss  inci- 
dent to  the  ebb. 

The  fundamental  principles  of  Exchange  then  are  few, 
and  may  be  clearly  and  concisely  stated.  It  is  of  the 
highest  consequence  that  they  be  well  understood.  There- 
fore, repeating  some  things  already  presented,  we  give  here 
a  summary  statement,  adopting  the  distinctions,  and  to  a 
considerable  extent  the  precise  language,  of  Mr.  J.  S. 
Mill. 

All  things  that  are  bought  and  sold  may  be  distributed 
into  three  classes.  First,  There  are  things  of  ivhich  it  is 
physically  impossible  to  increase  the  quantity  beyond  cer- 


268  EXCHANGE. 

tain  narrow  limits.  Such  are  ancient  sculptures,  paint- 
ings of  old  masters,  rare  books  or  coins,  and  wines  that 
require  peculiar  conditions  of  soil,  climate  and  exposure. 
Second,  There  are  things  which  at  a  moderate  outlay  of 
labor  and  capital,  can  be  multiplied  indefinitely.  The 
majority  of  things  bought  and  sold  belong  to  this  class. 
With  laborers  and  machinery  enough,  such  things  as  cot- 
tons, woolens,  shoes,  hats,  might  be  multiplied  a  thousand 
fold,  or  at  least,  till  the  measure  of  the  earth's  capacity  to 
afford  materials  is  reached.  Third,  There  are  commodities 
which  can  be  produced  in  limited  quantity  at  a  given  cost ; 
but  to  increase  the  quantity  involves  a  much  greater  pro- 
portional cost.  To  this  class  belongs  the  agricultural  pro- 
duce of  a  limited  area  of  land.  A  field  that  yields  twenty- 
rive  bushels  to  the  acre,  may  be  made  to  yield  forty  bushels, 
but  the  cost  will  be  much  more  than  doubled.  With 
these  distinctions  and  points  before  presented,  in  mind, 
the  following  principles  will  be  plain  and  almost  self-evi- 
dent. 

1.  Value  is   a  relative  term.     The  value  of   a  thing 
means  the  quantity  of  some  other  thing,  or  of  things  in 
general,  for  which  it  can  be  exchanged.     The  values  of  all 
things  can  never  therefore,   rise   or   fall   simultaneously. 
There  is  no  such   thing  as  a  general  rise  or  a  general  fall 
of  values.     Every  rise  of  value  supposes  a  fall,  and  every 
fall  a  rise. 

2.  The  temporary  or  market  value  of  a  thing  depends 
on  the  demand  and  supply  ;  rising  as  the  demand  rises  and 
falling  as  the  supply  rises.     The  demand,  however,  varies 
with  the  value,  being  generally  greater  when  the  thing  is 
cheap  than  when  it  is  dear  ;  and  the  value  always  tends  to 
adjust  itself   so  that  the  demand    shall    be  equal  to  the 
supply. 

3.  Things  have  also  a  permanent,  or  as  it  may  be  called 
a  Natural   Value,  to  which  the  market  value,  after  every 


FUNDAMENTAL   PRINCIPLES.  269 

variation,  always  tends  to  return  ;  and  the  oscillations  com- 
pensate for  one  another,  so  that  on  the  average,  commodi- 
ties exchange  at  about  their  natural  value. 

4.  The  natural  value  of  some  things  is  a  scarcity  value  ; 
but  most  things  naturally  exchange  for  one  another  in  the 
ratio  of  their  cost  of  production,  or  at  what  may  be  termed 
their  cost-values. 

5.  The  things  which  are  naturally  and  permanently  at 
a  scarcity  value,  are  those  of  which  the  supply  cannot  be 
increased  at  all,  or  not  sufficiently  to  satisfy  the  whole  of 
the  demand  which  would  exist  for  them  at  their  cost  value. 

G.  A  Monopoly  value  means  a  scarcity  value.  Monop- 
oly cannot  give  a  value  to  anything,  except  through  a  limi- 
tation of  the  supply. 

7.  Every  commodity  of  which  the  supply  can  be  indefi- 
nitely increased  by  labor  and  capital,  exchanges  for  other 
things  proportionally  to  the  cost  necessary  for  producing 
and  bringing  to  market  the  most  costly  portion  of  the  sup- 
ply required.     The  Natural  value  is  synonymous  with  the 
Cost  'value,  and  the  cost  value  of  a  thing  means  the  cost 
value  of  the  most  costly  portion  of  it  which  the  market 
demands. 

8.  If  one  of  two  things  commands,  on  the  average,  a 
greater  value  than  the  other,  the  cause  must  be  that  it 
requires  for  its  production,  either  a  greater  quantity  of 
labor,  or  a  kind  of  labor  permanently  paid  at  a  higher  rate  ; 
or  that  the  capital  or  part  of  the  capital  which  supports 
that  labor  must  be  advanced  for  a  longer  period  ;  or  that 
the  production  is  attended  with  some  circumstance  which 
requires  to  be  compensated  by  a  permanently  higher  rate  of 
profit. 

Assuming  that  there  is,  as  there  ought  to  be,  free  com- 
petition in  the  processes  of  Exchange,  as  in  the  processes 
of  Production,  the  perturbations  of  value  caused  by  varia- 
tions of  demand  and  supply  continue  only  during  a  period, 
which  cannot  exceed  the  length  of  time  necessarv  for  alter- 


270  EXCHANGE. 

ing  the  supply.  Under  the  pressure  of  competition,  de- 
mand and  supply  always  rush  to  an  equilibrium  ;  but  the 
condition  of  stable  equilibrium  .s  wiien  things  exchange  for 
each  other  according  to  their  cost  of  pri  oduction,  or  at  what 
is  fitly  called  their  natural  value. 

The  Necessity  of  Exchange. — If  every  man  were 
able  and  content  to  live  by  himself,  upon  the  fruits  of  his 
own  labor  ;  or  if  the  members  of  each  household  could 
satisfy  all  their  desires  by  the  proceeds  of  their  joint  indus- 
try, there  would  be  no  occasion  for  exchanges.  But  with 
his  unfolding  intelligence,  man's  desires  multiply  and 
reach  out  beyond  the  range  of  his  present  attainments, 
beyond  the  range  of  his  own  ability  too.  At  the  same 
time,  to  his  searching  inquiries,  nature  reveals  new  means 
of  enjoyment  which  both  gratify  and  stimulate  desire,  add- 
ing to  a  present  gratification  of  the  senses,  the  zest  of 
discovery  and  achievement,  and  the  pleasure  of  hope  which 
fondly  anticipates  more  and  better  things  to  come.  There 
are  also  in  man's  nature,  as  a  social  being,  interests, 
attractions,  sympathies  which  multiply  and  widen  his 
associations  and  his  opportunities,  as  both  a  giver  and  a 
receiver  of  good  things.  Thus  individuals  are  grouped  in 
families,  families  unite  in  communities,  communities  form 
states  and  nations,  and  nations  all  round  the  world,  inter- 
lock their  interests.  Under  a  law  of  interdependence  which 
necessitates  mutual  exchanges — the  giving  and  receiving 
of  benefits — human  intercourse  runs  into  civilization,  and 
no  limits  can  be  set  to  either  its  extension  or  the  variety 
and  intricacy  of  its  relations.  The  structure  of  the  world 
furnishes  tlte  means  of  exchange  or  trade  ;  and  the  nature 
of  man  compels  him  to  trade.  Exchange  is  therefore  a 
necessity  by  the  fixed  conditions  of  our  being. 

The  same  thing  appears  in  another  light.  We  have 
seen  that  for  the  production  of  wealth,  human  labor  must 


NECESSITY   OF   EXCHANGE.  271 

be  applied  to  objects  of  nature.  The  labor  thus  put  forth 
establishes  a  rigid  of  property,  partial  or  incomplete,  over 
the  objects  produced  ;  and  the  title  to  possession  thus 
secured,  is  exclusive  and  transferable.  But  different  per- 
sons are  constituted  by  the  Creator  with  different  aptitudes 
for  different  kinds  of  labor,  and  with  corresponding  likes 
and  dislikes  with  respect  to  occupations.  Both  the  com- 
fort of  the  individual  and  the  general  advantage  are  pro- 
moted by  every  one's  devoting  himself  to  that  occupation 
which  he  prefers,  and  for  which  he  is  especially  fitted. 
Each  will  do  his  best  and  achieve  the  largest  results  when 
his  efforts  are  put  forth  in  accordance  with  the  bent  of  his 
own  genius  and  inclination.  Under  such  a  distribution  of 
employments,  however,  every  man  becomes  the  producer  of 
but  a  single  product,  or,  at  most,  of  one  kind  of  wealth, 
and  of  this  he  produces  far  more  than  he  can  use  for  his 
own  gratification.  At  the  same  time,  he  has  desires  for 
the  enjoyment  of  a  thousand  other  objects  which  must  be 
produced  by  the  industry  of  others,  each  of  whom  has  a 
surplus  like  his  own  to  be  disposed  of.  All  this  varied, 
accumulated  wealth  must  be  utterly  useless,  unless  by  some 
process  of  mutual  exchanges,  each  can  get  what  he  wants 
by  giving  wliat  lie  can  spare. 

Furthermore,  we  have  seen  that  for  the  most  economi- 
cal and  profitable  production  of  wealth,  a  much  more  mi- 
nute division  of  labor  is  requisite.  The  diverse  labor  of 
twenty  men  may  be  combined  in  the  production  of  a  single 
object.  The  part  which  each  performs  is  of  little  or  no 
use  to  anybody,  except  as  it  enters  into  the  combined 
result.  He  who  in  a  watch-factory,  for  instance,  devotes 
all  his  labor  to  making  little  screws  by  the  thousand,  can 
put  the  things  which  he  produces  to  no  immediate  use  for 
himself  ;  perfect  and  beautiful  as  they  are,  a  bushel  of 
them  will  do  nothing  to  satisfy  the  cravings  of  hunger. 
A  hundred  men  may  each  contribute  some  part  towards 


272  EXCHANGE. 

the  structure  of  a  steam-engine  and  no  one  of  them  can 
ever  turn  to  his  own  benefit  either  the  part  which  he  makes 
or  the  whole  machine,  if  he  were  allowed  to  appropriate  it. 
In  this  case,  and  in  hundreds  of  similar  cases,  there  is  an 
absolute  necessity  of  some  system  of  exchanges  through 
which  the  one  total  value  made  up  by  the  labor  of  many 
different  hands,  can  be  broken  up  and  distributed  so  thai 
each  one's  varied  wants  may  be  met  and  satisfied. 

We  may  say  then,  in  brief,  that  the  diversity  of  nature's 
resources,  the  diversity  of  human  capacities,  and  the  inde 
reach  of  human  desires,  all  of  which  prescribe  for  human 
industry  the  principle  of  division  of  labor,  necessitate  ex- 
change. The  conditions  of  our  being  demand  the  pro- 
cesses of  exchange  as  imperatively  as  the  processes  of 
production.  Without  exchange,  there  could  be  no  divis- 
ion of  labor,  and  of  course  only  the  smallest  possible 
amount  of  production.  Without  exchange,  there  would 
rarely  be  any  stimulus  to  labor,  for  labor  could  add  but 
little  to  our  means  of  gratification,  beyond  the  most  abso- 
lute necessaries  of  life.  There  would  be  no  stimulus  to 
form  society,  since,  as  man  depended  solely  on  himself,  he 
might  as  well  be  solitary  as  social.  Hence,  all  progress  in 
civilization  would  be  barred,  and  the  generations  of  men 
would  be  held  forever  within  the  limitations,  doomed  to 
the  comparative  isolation  of  the  savage  state. 

The  same  principles  apply  with  equal  force  to  the  ex- 
changes between  different  nations. 

The  aptitudes  of  different  nations  for  the  creation  of 
different  products,  has  in  many  cases  been  fixed  by  un- 
changeable, geographical,  and  physiological  law.  Cotton, 
coffee,  spices,  dye-stuffs,  sugar,  rice,  and  many  of  the  most 
valuable  fruits  and  medicines,  can  be  cultivated  only  in 
southern  latitudes.  Wool,  wheat,  and  bread-stuffs  gener- 
ally, flax,  and  the  most  valuable  animals,  are  produced 


INTERNATIONAL   EXCHANGE.  273 

only  in  temperate  climates.  Iron  is  found  in  northern 
latitudes,  and  furs,  hemp,  and  feathers  are  brought  from 
climates  still  further  north.  One  country  is  better  adapted 
to  commerce,  another  to  agriculture,  and  another  to  manu- 
factures. 

Besides,  as  we  have  already  shown,  a  nation  at  one 
period  of  its  history,  is  better  adapted  to  one  sort  of  produc- 
tion than  to  another.  When  capital  is  scarce  and  land  is 
cheap  and  fertile,  a  state  is  better  adapted  to  agriculture  ; 
when  capital  becomes  abundant  and  land  dear,  it  becomes 
gradually  better  adapted  to  manufactures.  Thus  nations, 
as  well  as  individuals,  both  by  original  endowment  and 
accidental  circumstances,  have  their  special  adaptations  to 
the  creation  of  particular  products.  Nations  arc  like  indi- 
viduals, disposed  to  avail  themselves  of  the  peculiar  advan- 
tages bestowed  upon  them  by  their  Creator.  Self-interest 
teaches  them  this  lesson  with  sufficient  clearness,  and  they 
willingly  practice  it,  if  left  to  their  own  natural  instincts. 

It  is  also  evident  that,  by  each  nation's  devoting  itself 
to  that  branch  of  production  for  which  it  has  the  greatest 
facilities,  either  original  or  acquired,  its  own  happiness  will 
be  better  promoted,  and  a  greater  amount  of  wealth  will 
be  created,  than  in  any  other  manner.  And  while  all 
nations  thus  appropriate  their  industry,  a  much  greater 
amount  of  products  will  be  created  for  the  whole  human 
race,  than  by  any  change  that  could  possibly  be  made.  If 
Cuba  should  relinquish  the  raising  of  coffee  and  sugar,  and 
devote  herself  to  the  raising  of  wheat,  and  New  York, 
relinquishing  the  culture  of  wheat,  should  betake  herself 
to  the  raising  of  coffee  and  sugar,  would  not  both  com- 
munities be  poorer,  and  would  not  the  price  of  coffee, 
sugar,  and  wheat  be  increased  over  the  whole  world  ? 

But,  while  it  is  thus  evident  that  every  nation  is  in- 
tended by  the  Creator  to  improve  its  own  advantages,  by 
producing  that  for  which  it  has  the  greatest  facilities,  it  is 
12* 


274  EXCHANGE. 

also  the  fact,  that  every  nation,  and  every  individual  of  that 
nation,  desires  the  productions  of  every  other  nation,  and  is 
happy  in  proportion  as  they  are  enjoyed.  What  nation 
could  be  happy  without  the  cotton  of  the  south,  the  hemp 
and  iron  of  the  north,  or  the  wool,  wheat  and  manufac- 
tures of  temperate  climates  ?  Nay,  let  any  one  look  at  the 
clothes  which  he  wears,  the  furniture  of  his  room,  or  the 
food  and  utensils  of  his  table,  and  he  will  be  immediately 
convinced,  that  every  latitude  of  both  hemispheres,  and 
almost  every  country  on  the  globe  are  tributary  to  his  hap- 
piness. His  own  country  has  peculiar  adaptations,  but 
they  are  adaptations  for  but  few  products,  while  every 
citizen  of  that  country  requires  for  his  convenience,  nay, 
almost  for  his  existence,  the  productions  of  every  other 
country.  These  desires  can  be  gratified  only  by  national 
exchanges.  Hence  we  see  that  national  exchanges  enter 
into  the  constitution  of  things  under  which  we  are  created, 
as  much  as  individual  exchanges. 

And  the  final  cause  of  this  constitution  is  in  both  cases, 
equally  evident.  Individuals  are  made  thus  dependent 
upon  each  other,  in  order  to  render  harmony,  peace,  and 
mutual  assistance,  their  interest  as  well  as  their  duty. 

And  for  the  same  reason,  nations  are  dependent  upon 
each  other.  From  this  universal  dependence,  we  learn 
that  God  intends  nations,  as  well  as  individuals,  to  live  in 
peace  and  to  conduct  themselves  toward  each  other  upon 
the  principles  of  benevolence.  Where  all  are  mutually 
dependent,  no  one  can  prosper  without  increasing  the  pros- 
perity of  all,  nor  suffer  without  bringing  suffering  upon  all. 
Hence,  it  is  as  truly  our  interest  to  seek  the  happiness, 
peace  and  prosperity  of  other  nations,  as  it  is  to  seek  the 
happiness,  peace  and  prosperity  of  our  own  nation. 

The  Agents  of  Exchange. — The  business  of  ex- 


AGENTS   OF    EXCHANGE.  2^5 

change  is  obviously  a  distinct  department  of  useful  indus- 
try. By  it,  commodities,  after  they  are  produced,  are 
brought  within  the  reach  of  consumers,  so  that  they  can 
have  them  in  such  places,  at  such  times  and  in  such  quanti- 
ties as  are  most  convenient.  This  involves  labor,  and  so 
far  increases  the  cost  of  the  objects  ;  it  also  adds  to  their 
desirableness  j  hence,  in  both  ways  their  value  is  increased. 
The  value  of  commodities  in  the  last  exchange  which 
passes  them  to  the  consumer  is,  on  the  average,  probably 
double  that  at  which  they  pass  from  the  hands  of  the  origi- 
nal producers.  We  have  no  reason  to  complain  of  this, 
for  their  utility  as  well  as  their  cost,  is  increased  by  every 
step  of  the  process.  Coal  at  the  mouth  of  the  Pennsylvania 
mines  cannot  minister  to  the  comfort  of  a  home  in  Chicago. 
The  bales  of  calicoes  which  are  turned  out  of  the  mills  in 
Lowell,  cannot  clothe  the  farmers'  daughters  on  the  Illinois 
prairies,  until  they  have  been  transported,  broken  up  and 
distributed  so  that  the  keeper  of  the  country  store  can 
show  the  goods  and  measure  off  by  the  yard  just  what  the}r 
want.  The  poor  laborer,  who  easily  buys  a  dollar's  worth 
of  sugar  at  a  time,  would  deem  it  a  hopeless  undertaking 
for  him  to  pay  for  a  barrel  of  the  article  at  once.  The 
consumer  can  well  afford  to  pay  for  having  things  pre- 
sented, so  that  he  can  get  them  just  where  and  when  and 
as  they  will  best  meet  his  wants. 

On  the  other  hand,  the  producer  is  no  less  benefited 
by  this  intermediate  agency.  In  civilized  society,  labor  is 
divided  so  that  one  raises  farm  produce,  another  works  on 
iron,  another  on  wood  and  another  on  leather,  etc.  Now, 
if  each  one  is  obliged  to  suspend  his  labor  and  go  out  to 
find  purchasers  for  his  products,  much  time  will  be  lost. 
It  would  clearly  be  a  great  benefit  to  the  whole  community 
if,  while  others  are  busy  with  their  various  forms  of  pro- 
ductive labor,  one  should  devote  himself  to  the  business  of 
making  exchanges.  4  Each  producer  might  then  deposit 


276  EXCHANGE. 

with  him  whatever  he  had  to  offer  in  the  market,  and  take 
in  exchange  whatever  he  found  adapted  to  his  own  wants. 
Meantime,  he  who  gives  his  entire  attention  to  exchanges, 
learns  the  wants  of  the  community,  acquires  by  habit 
good  judgment  in  estimating  the  quality  of  the  articles  he 
handles,  and  exercises  his  invention  to  facilitate  the  satis- 
faction of  wants,  to  the  advantage  of  all.  Thus,  the  prin- 
ciple of  Division  of  labor  which  adds  much  to  the  economy 
of  production,  is  equally  applicable  to  the  industry  of 
exchange.  It  requires  that  certain  persons  devote  them- 
selves exclusively  to  this  labor  of  effecting  exchanges,  and 
that  they  receive  a  fair  compensation  for  their  service. 
Both  producers  and  consumers  share  in  making  up  that 
compensation  by  the  percentage  charged  on  the  values 
transferred  ;  that  is,  the  producer  sells  his  products  to  the 
exchanger  for  a  little  less  than  he  would  receive  if  he  sold 
them  directly  to  the  consumer,  and  the  consumer  pays  the 
exchanger  a  little  more  for  what  he  wants  than  if  he  bought 
directly  of  the  producer.  But  the  expense  of  conducting 
the  exchanges  is  far  less  than  it  would  be  without  such 
intervention. 

Merchants  is  a  general  name  for  those  who  devote  them- 
selves to  the  business  of  exchange.  But  the  principle  ol 
division  of  labor  applied  to  this  form  of  industry,  intro- 
duces a  considerable  variety  of  agents  with  a  corresponding 
diversity  of  names.  We  shall  not  attempt  to  present  a 
full  list  of  the  names,  nor  a  full  exposition  of  the  various 
forms  of  service  rendered.  But  a  few  may  be  specified  to 
set  forth  in  a  general  way,  the  phases  and  functions  of  the 
world's  multiform  and  wide-spread  commercial  operations. 
Since  by  its  very  nature,  exchange  always  involves  giving 
and  receiving,  we  must  recognize  in  the  commerce  of  every 
community  and  nation,  two  great  current*  of  trade — an 
outgoing  current  and  an  incoming  current.  The  outgoing 


AGENTS  OF   EXCHANGE.  277 

current  bears  away  what  a  people  have  to  spare ;  the  in- 
coming current  brings  back  what  a  people  want.  Each  of 
these  currents  has  its  own  agencies,  at  different  stages  of 
the  movement. 

Let  us  suppose  ourselves  in  a  section  of  country  whose 
chief  productions  are  the  fruits  of  agriculture — in  the  grain 
regions  of  the  west  or  the  cotton  regions  of  the  south. 
Each  farmer's  crops  bring  him  a  surplus  quite  beyond  what 
he  can  use  for  his  own  needs.  How  is  he  to  dispose  of  it  ? 
When  the  country  is  new,  he  has  no  alternative  ;  he  must 
himself  transport  it  twenty,  fifty,  a  hundred  miles,  it  may 
be,  to  the  nearest  place  of  trade,  and  there  make  his  sale, 
and  with  the  avails  purchase  whatever  he  most  needs.  But 
as  soon  as  settlers  are  sufficiently  multiplied,  some  one 
opens  a  store  in  the  farmer's  immediate  neighborhood. 
We  call  him  a  Retail  merchant,  for  he  has  all  sorts  of  goods 
to  sell,  in  quantities  as  small  as  any  may  wish.  For  the 
goods  he  sells,  he  is  willing  to  receive  whatever  his  custom- 
ers have  to  spare,  making  his  own  arrangements  for  trans- 
porting the  produce  to  a  larger  market.  His  title,  retail- 
merchant  has  respect  only  to  his  sales  in  small  quantities. 
But  for  the  time,  he  occupies  a  double  position  and  fulfills 
a  double  function.  He  stands  at  the  extreme  end  of  the 
line  of  incoming  trade,  for  the  articles  which  he  sells  mak- 
ing the  last  transfer,  that  passes  them  directly  to  those 
whose  wants  they  are  to  satisfy.  He  stands  also  at  the  be- 
ginning of  the  line  of  outgoing  trade,  gathering  up  those 
surplus  products  of  his  neighborhood  which,  starting  on 
their  course  from  his  hand,  are  to  float  on  the  current  of 
trade,  half  round  the  world,  it  may  be,  to  find  their  ulti- 
mate consumers.  As  population  grows  more  dense,  and 
wealth  increases,  another  agent  appears  on  the  ground. 
He  is  called  sometimes  a  middle-man,  sometimes  a  produce- 
buyer,  sometimes  a  commission-dealer.  By  arrangement 
with  some  house  at  a  commercial  centre,  he  is  authorized 


278  EXCHANGE. 

to  buy  for  others  the  grain,  the  cotton,  the  beef,  the  pork, 
the  wool,  the  eggs,  the  butter,  the  cheese,  or  whatever  of 
one  kind  or  of  many  kinds  of  produce  may  be  ordered,  and 
is  compensated  by  a  percentage  or  commission  on  the 
values  purchased.  To  him  the  store-keeper  readily  resigns 
one  part  of  his  business,  and  the  rills  from  many  fountains 
are  gathered  into  a  regular  flowing  stream.  With  the  in- 
troduction of  railways,  come  in  the  warehouse-men,  one  at 
every  station,  who  works  in  a  small  way  to  send  a  portion 
of  the  country's  products  into  the  great  warehouse  or  ele- 
vator of  his  correspondent  in  the  commercial  emporium. 
The  farmer  now  has  his  option  either  to  sell  outright  to  the 
agent  near  home,  or  to  send  what  he  has  to  the  distant 
city,  there,  for  a  small  fee,  to  be  stored,  while  he  takes  his 
chances  with  the  general  market.  So  we  recognize  in  the 
interior  city,  other  agents  connected  with  the  outgoing 
current,  such  as  the  Consignee  and  the  Produce-broker, 
who  pass  on  the  stores  accumulated  in  Chicago  and  Buffalo, 
to  the  shipping-merchant  of  the  great  seaport,  New  York  or 
Baltimore,  thence  to  be  exported  to  the  ends  of  the  earth, 
as  the  needs  of  men  may  require. 

In  former  times,  when  manufactured  articles  were 
mostly  made  by  hand  in  a  small  way,  at  the  scattered 
homes  of  workmen,  such  products  were  gathered  and 
thrown  upon  the  current  of  trade,  in  much  the  same  man- 
ner as  that  just  sketched.  But  the  extensive  use  of  machi- 
nery in  these  later  years,  has  concentrated  manufacturing 
industry  in  large  establishments,  whose  products  are  passed 
out  upon  the  currency  of  trade  through  the  agency  of  Fac- 
tors or  commission  merchants.  Each  large  factory  or  mill 
has  its  agent  of  this  kind  in  one  of  the  great  commercial 
centres,  to  whom  the  greater  part  of  the  products  are  sent, 
as  soon  as  finished,  and  he  manages  the  sale  and  distribu- 
tion of  them  in  the  general  market,  receiving  his  compen- 
sation, sometimes  by  salary,  ofteuer  by  a  percentage  on. 


AGENTS   OF   EXCHANGE.  279 

the  amount  of  sales.  A  domestic  factor  is  one  who 
renders  this  service  in  the  country  in  which  the  goods  are 
made  ;  a  foreign  factor  attends  to  the  business  in  another 
country. 

To  understand  the  functions  and  agencies  connected 
with  the  incoming  current  of  trade,  we  take  our  stand  at 
the  port  of  entry,  say  New  York.  Here  the  agency  of  the 
Importer  is  first  to  be  noticed.  He  studies  the  wants  of  his 
own  country  and  the  products  and  prices  of  foreign  coun- 
tries, generally  with  respect  to  a  particular  kind  of  com- 
modities ;  and  as  a  real  purchaser,  orders  what  he  thinks 
the  needs  of  the  country  demand.  The  goods  thus  im- 
ported he  sells  generally  in  bulk,  by  sample,  to  the  Wliole- 
sale-mer chant.  He  opens  them  more  fully  and  sells  by 
bale  or  case  to  the  Jobber.  Of  him  the  Retail-merchant 
buys  by  the  piece  and  smaller  package,  and  through  him,  as 
he  passes  them  to  his  individual  customers  in  such  quanti- 
ties as  they  desire,  the  distribution  is  complete. 

To  all  these  agents,  must  properly  be  added  the  whole 
class  of  Bankers,  Brokers  and  Dealers  in  exchange  drafts, 
etc.,  who  have  to  do  with  money  and  credit,  the  instru- 
ments of  exchange  ;  also,  those  who  as  Underwriters  and 
Insurers,  give  special  attention  to  guarding  the  risks,  by 
land  and  by  sea,  involved  in  trade.  But  these  will  come 
up  for  more  particular  notice  in  another  connection. 

Thus  in  outline,  we  get  a  view  of  the  manifold  pro- 
cesses and  agencies  of  exchange.  In  the  actual  operations 
of  commerce,  these  functions  are  further  divided,  partially 
combined,  variously  diversified,  minutely  ramified,  so  that 
the  complications  of  trade  become  extremely  intricate  ;  and 
yet  by  some  hidden  law  of  self-adjustment,  the  machinery 
works  out  its  legitimate  result,  so  that  the  wants  of  men 
are  met,  with  little  waste  of  the  products  of  human  indus- 
try. It  is  an  exceedingly  economical  arrangement. 
Though  the  price  which  the  consumer  pays  for  his  yard  of 


280  EXCHANGE. 

cloth  covers  something  paid  to  the  agent  of  every  succes- 
sive transfer  through  which  it  has  passed,  yet  it  is  less,  by 
much,  than  it  must  have  been  without  this  organized  sys- 
tem of  exchange.  Exchangers  are  as  necessary  to  the 
cheapness  of  production,  as  producers  themselves.  Let 
competition  be  free  with  both  producers  and  exchangers, 
and  all  things  will  come  into  the  consumers'  hands  as 
nearly  as  possible  at  their  natural  value.  The  machinery 
of  exchange  is  worth  all  and  more  than  all  it  costs.  We 
see  how  absurd  is  the  outcry  sometimes  made  against  those 
engaged  in  mercantile  business  that  they  produce  nothing. 
The  general  tendency  of  their  service  is  to  cheapen  every- 
thing offered  in  the  market  and  to  enrich  the  market  by 
a  thousand-fold  multiplication  of  comforts  and  luxuries  for 
the  life  of  man.  The  laborer  may  sometimes  feel  like  com 
plaining,  that  the  merchant  has  an  easy  time  sitting  at  his 
desk,  while  he  is  sweating  at  his  hard  toil ;  that  the  mer- 
chant rides  in  his  carriage,  while  he  trudges  on  his  weary 
way  afoot ;  that  the  merchant  is  rich,  while  he  is  poor.  But 
if  he  considers  how  a  hundred  merchants  fail,  where  one 
succeeds  ;  how  intense  and  wearing  is  the  merchant's  brain- 
work  ;  how  sickening  often  amid  his  perplexities,  is  the 
showy  style  of  his  mode  of  living ;  and  above  all,  how  inti- 
mately connected  are  the  services  of  the  mercantile  class 
with  both  the  wages  which  he,  the  laborer  earns,  and  the 
cheapness  of  everything  he  buys  in  the  market  for  his  sup- 
port, he  will  hush  his  complaint,  under  the  conviction  that 
no  lot  in  life  is  free  from  its  trial,  and  that  the  interests  of 
men  of  different  occupations  are  so  woven  together  that 
adversity  to  one  class  is  adversity  to  all,  and  true  prosper- 
ity for  one  is  prosperity  for  all. 

While  we  thus  fully  recognize  the  useful,  indispensable 
service  rendered  by  the  agents  of  commerce,  sound  econ- 
omy requires  that  the  number  and  expense  of  these  agen- 
cies be  reduced  as  far  as  practicable,  consistently  with  the 


AGENTS   OF   EXCHANGE.  281 

free  and  effective  action  of  this  important  machinery  of 
civilized  society.  At  the  same  time,  there  is  occasion  for 
warning  and  protest  against  the  abuse  of  the  power  in  their 
hands  which  we  see  sometimes  practised  by  these  agents. 
A  single  trader  or  a  company  of  traders  combining  may 
avail  themselves  of  their  knowledge  of  the  state  of  the 
market  to  produce  an  artificial  scarcity,  that  they  may  by 
suddenly  raising  prices  rob  the  people  and  enrich  them- 
selves. Thus  in  the  grain  trade  which  centres  in  Chicago, 
by  secret  conspiracy,  such  "  corners  in  wheat,"  have  been 
produced,  to  the  serious  injury  of  other  dealers,  and  of 
consumers  and  indirectly  of  the  farmers  with  whose  pro- 
duce they  thus  gamble.  Sometimes  an  opposite  course  is 
taken,  and  the  trader  uses  an  advantage  he  has  gained  for 
the  hour  to  produce  an  artificial  but  temporary  cheapness, 
to  be  followed  by  a  sudden  rise  of  prices  which  will  more 
than  compensate  his  first  loss.  Too  many  of  the  so-called 
"  Boards  of  Trade,"  not  only  tolerate  but  countenance  and 
encourage  such  abuses  of  trust  and  power.  Both  justice 
and  philanthropy  cry  out  against  such  proceedings,  and 
the  word  of  God  seems  to  warrant  the  ban  of  righteous 
indignation — "  He  that  withholdeth  corn,  the  people  shall 
curse  him ;  but  blessing  shall  be  upon  the  head  of  him 
that  selleth  it." 


CHAPTER  XX. 

MONEY  AS  AN  INSTRUMENT  OF  EXCHANGE. 

Money. — Exchange,  like  every  other  department  of 
industry,  may  be  greatly  facilitated  by  the  use  of  proper 
instruments.  Simple  Barter,  that  is  the  exchange  of  one 
commodity  for  another  without  the  intervention  of  any 
common  standard  or  medium,  may  meet  all  the  exigencies 
of  savage  life,  where  private  property  is  restricted  to  a 
narrow  range  and  exchanges  are  few.  But  as  society 
emerges  from  that  state  into  civilization,  exchange  in  kind 
becomes  embarrassed  by  many  and  serious  difficulties. 

Suppose  a  man  has  made  a  table  with  which  he  desires 
to  buy  bread,  meat  and  shoes.  If  shut  up  to  barter,  he 
must  first  find  some  one  who  wants  a  table  of  just  that 
size  and  style.  Then  he  must  find  probably  three  other 
parties  who  make  and  have  to  spare  the  articles  he  wants. 
Then  by  a  series  of  negotiations  with  them  and  others,  he 
must  bring  about  such  a  division  and  distribution  of  the 
value  of  his  one  table,  as  shall  give  to  the  baker,  the 
butcher  and  the  shoemaker  a  fair  equivalent  for  that  which 
he  desires  from  each.  The  outlay  of  time  and  labor  neces- 
sary to  effect  the  desired  exchange  in  this  way,  must  be 
i'ully  equal  to  that  required  for  making  the  table.  The 
question  naturally  arises,  is  there  not  some  means  by 
which  this  expenditure,  or  the  greater  part  of  it,  can  be 
saved  ? 

The  difficulty  is  still  greater  when  a  compensation  issto 
be  provided  for  labor.  The  farmer,  in  the  spring,  calls  in 
the  help  of  a  man  to  plow  and  cultivate  his  fields.  This 


DIFFICULTIES   OF    BARTER.  283 

labor  will  create  value,  but  months  must  pass  before  that 
value  will  appear  in  form  to  be  exchanged.  Meantime, 
the  laborer  has  wants  that  clamor  for  present  satisfaction  ; 
but  how  can  those  wants  be  provided  for  unless  by  some 
device  which  shall  permit  the  fruits  of  his  labor  to  be 
drawn  upon,  before  they  appear  in  the  ripened  crop  ?  The 
case  is  yet  worse  with  the  workman  in  an  iron  foundry. 
How  can  he  and  his  family  be  fed  and  clothed,  if  he  must 
take  his  pay  in  the  iron  which  he  helps  to  produce  ? 
More  embarrassing  'still  is  the  difficulty  as  labor  becomes 
minutely  divided,  for  the  most  productive  methods  of 
civilized  industry.  When  a  man  devotes  himself  wholly 
to  making  rivets  for  knife-handles,  or  to  giving  edge  or 
polish  to  knife-blades,  how  is  he  to  subsist  by  exchange  in 
kind? 

It  would  bring  some  relief  to  these  embarrassments  if 
an  establishment  were  set  up  and  opened  as  a  store,  where 
all  the  various  articles  which  any  in  the  community  desire 
to  exchange  might  be  gathered  under  the  charge  of  some 
one  especially  skilled  in  negotiating  exchanges.  But 
then,  an  ever  recurring  difficulty  would  be  experienced  in 
adjusting  the  equation  of  value  between  different  articles,  a 
shovel  and  a  pair  of  boots,  for  instance  ;  and  for  the  com- 
pensation of  labor,  especially  under  the  minute  division 
of  labor,  scarcely  any  relief  could  be  obtained.  Under  the 
pressure  of  these  difficulties,  men  have  been  driven  to  the 
invention  and  adaptation  of  certain  instruments,  which 
bear  the  same  relation  to  the  operations  of  exchange,  which 
tools  and  machines  do  to  the  processes  of  mechanical  indus- 
try. By  a  common  instinct  of  discovery  and  adaptation 
to  a  need  universally  felt,  peoples  of  different  ages  and 
countries  have  taken  up  essentially  the  same  means  of 
relief  ;  and  their  evident  fitness  for  the  purpose,  rather 
than  any  authoritative  enactment,  has  secured  their  uni- 
versal adoption. 


284  EXCHANGE. 

Money  and  Credit  constitute  the  two  great  instru- 
ments of  exchange.  Of  the  two,  money  is  both  in  order 
of  time  and  of  importance,  first.  It  is  all  essential  to  civil- 
ized trade,  and  without  it  the  other  has  little  or  no  mean- 
ing. Yet  credit,  though  only  a  representative  or  symbol 
of  money,  and  always  subordinate  to  its  control,  is  really 
the  working-engine  which  accomplishes  far  the  greater 
part  of  the  work  ;  when  properly  regulated,  giving  effect- 
iveness and  balance  to  a  world- wide  commerce,  but  when 
abused,  causing  disturbance,  convulsion  and  disaster 
through  the  entire  system.  A  clear  apprehension  of  the 
nature  and  functions  of  these  two  instruments  of  exchange 
is  of  the  highest  importance  to  an  understanding  of  the 
science  of  political  economy  ;  it  is  of  no  less  consequence 
to  the  successful  practical  management  of  mercantile  busi 
ness  and  of  public  finance.  We  attempt,  therefore,  a  clear 
and  distinct  exposition  of  elementary  truths  pertaining  to 
these  two  things,  with  fullness  enough  to  indicate  at  least, 
the  chief  points  of  its  practical  application. 

Money  may  be  defined  to  be  some  useful  product  of  labor 
which  serves  as  a  standard  of  value  by  which  wealth  of  every 
kind  is  measured,  and  as  an  instrument  by  which  one  kind 
of  'wealth  can  be  exchanged  for  another. 

Let  the  two  functions  of  money  be  carefully  observed. 

First,  Money  establishes  a  universal  Standard  of  Value, 

Second,  Money  is  a  Medium  for  the  exchange  of  Values. 

In  its  first-named  function,  as  a  means  of  ascertaining 
the  relative  value  of  different  commodities,  money  per- 
forms an  office  precisely  like  that  of  a  pound-weight,  or  a 
yard-stick  or  a  gallon-measure.  As  each  of  these  is  ad- 
justed to  be  a  standard  measure  of  a  certain  quality,  one 
of  weight,  another  of  length,  and  another  of  capacity,  so 
the  money-dollar  is  adjusted  to  be  a  standard  measure  of 
the  quality  called  value.  Whatever  is  thus  used  for  the 


MONEY    A    STANDARD    OF    VALUE.  285 

measurement  of  a  quality  must  itself  possess  the  quality  in 
question.  You  cannot  weigh  a  piece  of  meat  with  a  ray 
of  moonlight,  nor  get  the  length  of  a  piece  of  cloth  by 
means  of  a  drop  of  quicksilver,  nor  measure  a  gallon  of 
alcohol  with  the  edge  of  a  knife-blade.  No  more  can  you 
define  the  value  of  these  or  any  other  objects  by  unreal 
notions  or  shadowy  symbols.  Only  a  thing  of  value  can 
measure  value. 

According  to  our  definition,  value  may  be  resolved  into 
two  elements,  viz.,  utility  or  desirableness,  and  cost,  the 
exponent  of  labor.  Whatever  substance  then,  is  used  as 
money,  must  be  capable,  in  some  way,  of  ministering  to 
men's  gratification,  so  that  it  shall  be  generally  desired, 
and  the  nearer  it  comes  to  being  always  and  everywhere 
desired,  the  better  is  it  fitted  for  its  purpose  as  money.  It 
must  be  also  a  substance  which  can  be  obtained  only  by 
labor,  and  the  more  uniform  the  amount  of  labor  found 
necessary  to  obtain  it,  the  better  is  it  fitted  for  its  purpose 
as  money.  These  elements  must  be  combined,  neither  is 
sufficient  of  itself  to  form  value.  Nothing  in  the  world  is 
more  useful  than  the  air  we  breathe.  All  men  desire  it  ; 
without  it  they  die.  But  it  lias  no  value.  You  cannot 
bring  it  into  the  market  as  an  article  of  exchange,  because 
it  is  furnished  freely  to  all.  without  labor — it  costs  noth- 
ing. So  too,  there  may  be  exhibited  to  you  the  result  of 
weeks  and  months  of  labor  on  the  part  of  one  who  tried  to 
make  a  flying  machine.  After  all  is  done,  the  tiling  has 
no  beauty  to  cause  it  to  be  desired.  There  is  no  want  of 
man  which  it  can  possibly  be  made  to  gratify.  It  has  cost 
a  deal  of  labor,  but  it  has  no  value,  for  it  can  be  put  to  no 
use  whatever.  The  value  of  money  therefore  depends  upon 
the  combination  of  these  two  elements  in  the  substance 
employed.  Both  are  indispensable.  Hence  in  our  defini- 
tion, we  say  that  the  substance  of  money  is  "  some  useful 
product  of  labor  " 


286  EXCHANGE. 

It  is  of  the  highest  importance  that  any  standard  of 
measurement  should  be  fixed  with  exactness  and  kept  as 
invariable  as  possible.  When  a  standard  unit  of  measure- 
ment for  the  material  qualities  of  length,  surface,  volume 
and  weight  was  to  be  determined  for  the  French  govern- 
ment, nearly  a  hundred  years  ago,  the  Academy  of  Sciences 
recommended  that  one  ten  millionth  of  the  quadrant  of  a 
terrestrial  meridian  be  taken.  Seven  years  of  great  labor 
were  occupied  in  ascertaining  with  nicest  exactness  the 
length  of  that  linear  base,  called  the  Metre.  By  this,  the 
unit  of  surface,  the  unit  of  volume,  and  the  unit  of  weight 
were  determined  with  equal  care  and  the  metric  system 
was  made  as  nearly  perfect  as  any  human  device  can  be. 
Nature  furnishes  us  no  such  absolutely  fixed  and  invaria- 
ble unit  of  value.  But  it  certainly  behooves  men  to  select 
for  their  standard  of  value,  the  most  stable  and  unaltera- 
ble thing  to  be  found  in  nature.  All  the  transactions  and 
contracts  of  trade  depend  upon  precise  determinations  of 
the  values  involved.  If  the  standard  of  measurement  is. 
variable,  all  these  operations  must  be  attended  with  uncer- 
tainty and  confusion.  Hence  the  importance  of  securing 
to  money  the  utmost  possible  precision  and  stability  of 
value.  "  All  substitutes  for  it,  all  modes  of  economizing 
or  facilitating  its  use,  are  equitable  and  legitimate  only  so 
far  as  they  preserve  its  essential  attributes  of  precision  and 
unchangeableness."  All  things  are  exchanged  with  refer- 
ence directly  or  indirectly  to  their  prices ;  but  price  is 
value  measured  by  money.  Hence  money,  as  a  universal 
standard  for  the  measurement  of  value,  is  an  indispensable 
agent  of  commerce. 

Money  in  its  second  function,  as  a  Medium  of  excJiange, 
also  performs  a  very  essential  service  in  the  commerce  of 
the  world.  The  real  object  of  all  trade  is  to  effect  an  in- 
terchange of  commodities.  The  actual  wants  of  men  are 


MONEY   A    MEDIUM    OF   EXCHANGE.  28? 

met  only  as  every  one,  by  parting  with  one  article,  may 
secure  some  other  article  which  he  needs.  The  difficulty 
of  doing  this  directly  has  been  already  noticed.  That 
difficulty  is  overcome  by  the  intervention  of  Money,  a  third 
article,  which  all  desire,  partly  for  some  intrinsic  qualities 
which  it  possesses,  but  more  for  its  adaptedness  to  just 
this  function  of  a  medium.  By  means  of  it,  what  cannot 
be  effected  by  one  exchange  maybe  easily  accomplished  by 
two.  The  man  can  sell  his  table  for  money.  The  money 
is  easily  divided,  and  the  baker,  the  butcher  and  the  shoe- 
maker are  quite  ready  for  their  respective  portions  of  the 
money,  to  sell  him  the  bread  and  meat  and  shoe^  which 
will  satisfy  his  pressing  wants.  Through  this  nu-Jiuro,  by 
two  exchanges,  the  end  is  easily  attained,  which  could  not 
be  attained  by  one  exchange  without  vastly  more  of  trouble 
and  labor.  This  common  medium  must  eviden  -,ly  be  some 
embodiment  of  value,  which  one  can  safely  receive  for  the 
commodity  he  wishes  to  part  with,  because  he  Knows  that 
it  will  be  received  by  others  at  the  same  valuation,  for 
whatever  he  may  wish  to  purchase. 

TJie  essential  qualities  of  suck  a  common  medium  of 
exchange,  are  three  : 

First,  Precision  and  Stability  of  value,  the  same  qual- 
ity which  we  saw  to  be  of  highest  consequence,  for  the 
first  named  function  of  money. 

Second,  Universal  Acceptableness  so  that  it  will  readily 
be  received  by  everybody  for  whatever  he  has  to  dispose  of. 

Third,  Divisibility  into  parts,  representing,  without 
loss  of  value,  different  degrees  of  value,  so  as  to  furnish  an 
exact  equivalent  of  any  required  amount. 

We  can  conceive  that  one  substance  might  be  adopted 
as  a  standard  of  value,  and  another  employed  as  a  medium 
of  exchange.  Thus  wheat  might  be  selected  as  the  standard 
to  which  every  tiling  else  should  be  referred,  and  certain 
beautiful  African  shells  called  cowries,  having  been  first 


288  EXCHANGE. 

measured  and  marked  by  that  standard,  might  be  used  as 
counters  in  the  actual  transfer  of  articles.  But  such  an 
arrangement  would  involve  many  inconveniences.  There 
would  always  be  something  arbitrary  and  uncertain  in  the 
adjustment  of  the  two  to  each  other,  and  the  necessity  of 
keeping  in  mind  two  objects,  so  different,  would  confuse 
and  complicate  all  operations.  Hence  the  necessity  that 
the  same  substance  should  fulfill  these  two  functions,  and 
that  it  should  combine  the  qualities  necessary  for  both. 

This  does  not  imply  hoiuever,  that  money  as  a  medium 
must  be  actually  used  in  every  exchange  that  is  made. 
When  once  a  standard  of  value  is  defined,  different  com- 
modities can  be  measured  by  it,  and  then  interchanged  by 
being  offset  against  each  other  according  to  their  respect- 
ive values.  Thus  the  farmer's  wife  brings  her  basket  of 
eggs  and  her  firkin  of  butter  to  the  village  grocer.  In 
terms  of  money,  she  sets  her  price  for  these  articles,  and 
he  in  like  manner,  names  his  prices  for  the  tea  and  sugar 
and  spice  she  wants,  and  the  trade  is  at  once  adjusted  and 
consummated  without  any  payment  of  money  on  either 
side.  The  same  thing  is  going  on  all  the  time,  on  an  im- 
mense scale,  in  the  commerce  between  New  York  and 
Liverpool.  By  processes  hereafter  to  be  explained,  ship- 
loads of  wheat  are  balanced  off  against  ship-loads  of  manu- 
factured goods,  the  values  on  either  side  amounting  to 
millions  of  dollars,  without  the  actual  payment  of  any 
money.  Thus  through  the  function  of  money  as  a  meas- 
ure of  value,  the  greater  part  of  the  trade  of  the  world 
becomes  really  exchange  in  kind.  Yet  this  cannot  be, 
except  as  there  is  money  within  reach  to  be  used  as  a 
medium  of  exchange  when  an  exigency  demands  its  inter- 
position. In  the  last  settlement,  the  balance  must  be  paid 
in  money,  and  at  every  step  the  reckoning  is  kept  in  money's 
worth. 

Since    wealth    is    continued    and    increased   only   by 


ARTICLES   USED    AS   MONEY.  289 

repeated  processes  of  consumption  and  reproduction,  in- 
volving an  interminable  succession  of  exchanges  ;  and  since 
money  is  the  constant  medium  of  exchange,  wealth  of 
every  kind  must  more  or  less  frequently,  for  a  longer  or 
shorter  time,  appear  in  the  form  of  money.  Everything 
that  has  value  will  come  at  some  time  or  other  to  have  its 
price  and  be  estimated  in  terms  of  money.  This  close  iden- 
tification of  all  wealth  with  money,  in  whose  form  it  some- 
times appears,  has  occasioned  the  mistake  noticed  in  a 
previous  part  of  this  work,  of  resolving  all  wealth  into 
money,  so  that  money  is  regarded  as  the  most  desirable  of 
all  things  to  be  brought  into  a  country.  The  best  correc- 
tion of  this  mistake  comes  from  a  clear  apprehension  of 
the  true  nature  of  money,  as  a  simple  instrument  of  ex- 
change, fulfilling  its  two  important  functions  ;  itself  form- 
ing but  a  very  small  part  of  the  world's  wealth  and  capable 
of  increasing  wealth  only  indirectly,  as  it  facilitates  those 
multifarious  exchanges  which  carry  every  kind  of  wealth 
where  it  is  most  needed  to  satisfy  the  wants  of  men. 

Any  article  which  has  value  may  be  made  to  perform 
the  functions  of  money.  Thus  by  different  nations  and  in 
different  ages  of  the  world,  various  articles  have  been  em- 
ployed. Among  pastoral  nations,  cattle  have  been  quite 
commonly  employed  as  the  chief  instrument  of  exchange. 
Homer  tells  us  that  the  armor  of  Diomede  cost  nine  oxen. 
So  the  wealth  of  the  patriarch  Job  is  estimated  by 
the  number  of  his  sheep  and  camels  and  oxen  and  asses. 
Hence,  probably,  arose  the  custom  among  the  Greeks  and 
Romans  of  stamping  their  earliest  coin  with  the  figure  of 
an  ox  or  sheep.  Thus  the  Latin  word  for  money,  pecunia 
is  supposed  to  be  derived  from  pecus,  cattle.  In  ancient 
Syracuse  and  Britain,  money  was  made  of  tin,  in  Sparta  of 
iron.  We  find  used  for  the  same  purpose,  a  preparation 
of  leather  among  the  Carthaginians,  platinum  in  Russia, 
13 


290  EXCHANGE. 

lead  in  Burmah,  nails  in  Scotland,  pieces  of  silk  among  the 
Chinese,  cubes  of  pressed  tea  in  Tartary,  salt  in  Abyssinia, 
cowrie  shells  on  the  coast  of  Africa,  slaves  among  the 
Anglo-Saxons,  tobacco  in  Virginia,  codfish  in  Newfound- 
land, bullets  and  wampum  in  the  early  history  of  Massa- 
chusetts, logwood  in  Campeachy,  sugar  in  the  West-Indies, 
soap  in  Mexico.  But  from  the  time  of  Abraham,  when  he 
paid  (Gen.  xxiii  :  16)  to  the  children  of  Heth  "  three  hun- 
dred shekels  of  silver,  current  money  with  the  merchant " 
— the  earliest  record  of  a  purchase  with  money — till  now, 
gold  and  silver  have  been  employed  as  the  money  of  the 
world  with  civilized  and  commercial  people.  In  most  of 
the  cases  mentioned,  when  other  articles  were  employed, 
the  standard  of  value  was  recognized  as  set  by  the  precious 
metals,  and  on  account  of  the  scarcity  of  these  metals,  the 
other  things  named  were  used  as  a  medium  of  exchange. 
Thus  the  wampum  and  bullets  of  Massachusetts,  the 
tobacco  of  Virginia  and  the  sugar  of  the  West  Indies, 
passed  from  hand  to  hand,  to  effect  particular  exchanges, 
with  a  commercial  value,  more  or  less  distinctly  recognized 
in  terms  of  silver  or  gold.  It  should  be  noted  that  when 
anything  that  has  been  used  as  money  is  devoted  to  any 
other  use,  its  functions  as  money  cease.  Gold  coin  turned 
into  gold  plate,  just  as  really  as  tobacco  or  sugar  passed  to 
a  consumer,  is  no  longer  money. 

Whatever  Substance  is  used  as  Money  must 
be  Universally  desired  as  such. — Its  object  is  to 
facilitate  exchanges,  but  it  can  accomplish  this  object  only 
by  means  of  the  willingness  of  the  whole  community  to 
exchange  for  it  everything  which  they  are  willing  to  part 
with.  If  one  individual  of  a  community  prefers  one  sub- 
stance, and  another  individual  another,  exchanges  will  be 
embarrassed  by  unnecessary  complication,  and  by  the  use- 
less consumption  of  time.  And  if  on  the  other  hand,  any 


NECESSARY   QUALITIES   OF    MONET.  291 

substance  is  thus  universally  desired,  on  account  of  the 
great  facilities  which  it  offers,  and  the  great  saving  of 
labor  which  it  effects,  it  will  be  immediately  used  for  this 
purpose.  And  it  will  be  so  used  without  any  agency  of 
government,  and  even  though  a  government  did  not  exist, 
just  as  a  man  will  use  any  other  instrument  for  increasing 
the  productiveness  of  his  labor  as  soon  as  he  can  procure 
it,  simply  for  the  reason  that  it  is  for  his  advantage. 

If  the  exchanges  of  a  country  were  wholly  internal,  it 
would  be  sufficient  that  such  a  medium  were  universally 
acceptable  in  that  country  alone.  But,  inasmuch  as  every 
nation  has  important  and  extensive  exchanges  with  other 
nations,  it  is  an  additional  advantage  to  have  the  same 
substance  used  as  a  medium  of  exchange.  That  exchange 
is  the  most  profitable  for  a  country,  in  which  it  exports 
what  is  relatively  most  abundant  at  home,  and  imports 
that  which  is  relatively  most  wanted  at  home  ;  and  imports 
it  from  that  country  in  which,  what  it  exports  is  most 
wanted,  and  what  it  imports  is  most  abundant.  Now  it  is 
evident  that  money  may  be  accumulated  in  any  country, 
so  that  it  shall  be  relatively  lower  in  value  than  other  com- 
modities. Thus,  the  precious  metals  may  be  so  abundant 
in  this  country,  that  a  merchant  can  procure  more  iron  in 
Russia  by  sending  a  given  amount  of  gold,  than  by  send- 
ing the  flour  which  would  here  be  equal  in  value  to  the 
gold.  It  is  therefore  for  his  advantage  to  send  the  gold, 
and  it  is  equally  for  the  advantage  of  his  country.  And 
for  the  same  reason,  if  in  this  country  there  is  a  relative 
scarcity,  it  will  be  for  the  advantage  of  other  nations,  as 
well  as  for  our  advantage,  that  they  should  send  gold  or 
silver  in  exchange  for  our  products.  In  this  manner,  ex- 
changes are  made,  of  that  which  is  least  wanted  by  both 
parties,  for  that  which  is  most  wanted  by  both.  This 
enables  both  parties  to  supply  themselves  at  the  lowest 
rates. 


292  ECXHANGE. 

Besides,  it  is  very  desirable  that  the  value  of  money  be 
as  little  as  possible  liable  to  fluctuation.  Now  if  the  same 
substances  are  used  iu  all  the  civilized  world,  this  fluctua- 
tion, if  not  absolutely  prevented,  will  be  so  restricted,  as 
to  produce  the  least  possible  amount  of  evil.  When  ex- 
changes between  countries  are  frequent  and  numerous, 
and  the  prices  of  all  commodities  are  universally  known 
by  the  merchants  of  both,  as  specie  may  be  sent  abroad 
with  very  little  cost  of  transportation,  a  very  slight  advance 
in  its  relative  value  will  cause  it  to  flow  in  from  other 
countries,  and  a  very  slight  surplus  will  cause  it  to  flow  to 
other  countries,  until  the  common  equilibrium  is  restored. 
In  this,  we  see  in  what  manner  the  universal  employment 
of  the  same  substances,  by  all  nations  holding  intercourse 
with  each  other,  will  be  an  advantage  to  all ;  inasmuch  as 
it  will  prevent  any  great  fluctuation  in  their  relative  value 
in  any  particular  country. 

The  adoption  by  a  community  or  state  of  a  kind  of 
money  which  is  not  acceptable  in  other  countries,  neces- 
sarily excludes  that  people  in  great  measure  from  the  com- 
merce of  the  world.  Thus  in  ancient  Sparta,  in  order  to 
maintain  the  policy  of  isolation  which  ruled  the  state,  and 
to  restrict  all  foreign  commerce,  it  was  enacted  that  the 
money  of  the  state  should  be  of  iron  alone.  This  measure 
had  the  effect  to  repress  trade,  but  it  also  made  the  Spar- 
tans the  most  venal  and  corrupt  of  all  the  peoples  of 
Greece.  For  the  free  and  prosperous  commerce  of  civil- 
ized nations,  it  is  of  the  highest  importance  that  the  stand- 
ard of  value  and  medium  of  exchange  adopted  by  them  be 
uniform.  The  circulation  in  a  country  of  an  irredeema- 
ble paper  money,  or  the  adoption  of  a  standard  of  specie, 
at  variance  with  that  in  use  among  other  commercial 
nations,  must  inevitably  impede  the  trade  and  impair  the 
industry  of  that  country. 


QUALITIES  OF   GOLD    AND   SILVER.  293 

The  special  adaptedness  of  Gold  and  Silver 
for  the  functions  of  money  is  due  to  certain  qualities 
which  are  found  peculiarly  combined  in  these  metals. 
These  qualities  should  be  specifically  noticed. 

1.  Gold  and  silver  are  intrinsically  desirable.     Their 
brilliancy,  their  malleability,  their  resistance  of  corrosion 
and  their  permanence  fit  them  especially  for   ornaments 
for  the  person,  for  plate  and  for  the  manifold  decoration 
of  temples,  houses  and  equipages.     Articles  made  of  these 
materials  or  adorned  by   them  have  an  intrinsic   beauty 
which  gratifies  the  taste  of  men  universally.     They  are 
desired  by  rude  and  cultivated  people  alike.     This  taste, 
which  has  been  uniform  and  enduring  through  the  ages,  is 
not  likely  ever  to  change  or  pass  away.     We  have  reason 
to  believe  that  those  which  are  fitly  called  the  precious 
metals  will  always  be   sought  after   for  these   and  other 
more  substantial  uses  to  which  they  may  be  applied.    Their 
further  use  as  money  only  enhances  and  makes  more  con- 
stant and  steady  their  general  desirableness. 

2.  These  metals  are  obtainable  only  by  labor  ;  and  the 
amount  of  labor  necessary  to  obtain  them  is  more  invariable 
than  that  which  pertains  to  other  substances.     Occasionally 
in  California  or  in  Australia,  one  may  have  chanced  sud- 
denly to  find  a  nugget  of  pure  gold,  but  ordinarily,  gold 
and  silver  are  obtained  as  the  fruit  of  labor  in  long  and 
patient  search,  washing  sands,  breaking  rocks,  reducing 
ores  and  separating  the  metal  from  other  substances  with 
which  in  nature  it  is  associated  or  combined.     The  amount 
produced  is  directly  and  immediately  dependent  on  the 
labor  employed.     Twice  in  the  history  of  the  world,  viz., 
on  the  first  discovery  of  America,  and  on  the  unfolding  of 
the    mineral   treasures   of   California,  Australia   and  the 
llocky  Mountains,   there    was  a  sudden  increase   of    the 
amount  of  these  metals  in  the  world's  market.     But  in 
both  cases,  this  increase  of  the  material  of  money  was  fol- 


294  EXCHANGE. 

lowed  very  closely  by  an  expansion  of  the  commerce  of  the 
world  which  caused  a  corresponding  increase  in  the  demand 
for  money,  so  that  the  equilibrium  between  supply  and 
demand  wras  but  slightly  disturbed. 

As  \ve  have  seen,  the  two  elements  of  value  are  desira- 
bleness, and  cost  measured  by  the  labor  necessary  to  obtain  a 
given  object.  In  respect  to  both  these  elements,  gold  and 
silver  are  permanent  and  uniform  beyond  any  other  pro- 
ducts of  human  labor.  Hence  their  value  is  less  fluctua- 
ting, more  stable  than  that  of  anything  else,  and  therefore 
they  are  best  adapted  to  fulfill  the  functions  of  money. 

3.  These  metals  concentrate  within  a  small  bulk  a  large 
amount  of  value.     In  the  use  of  them  as  the  instrument  of 
exchange,  much  labor  of  transportation  is  saved.     They 
are  conveniently  portable.     A  man  may  easily  carry  in  his 
pocket,  the  value  of  a  wagon -load  of  wheat,  or  a  car-load 
of  cattle,  when  put  into  the  form  of  gold.     At  the  same 
time,  their  value  is  not  too  much  concentrated  as  is  the 
case  with  diamonds. 

4.  These  substances  are  capable  of  minute   Division 
without  loss  of  value.     This  is  a  quality  essential  for  facili- 
tating all  sorts  of  exchanges.     A  gold  eagle  or  a  silver  dol- 
lar may  be  divided  into  ten  equal  parts  and  each  piece  will 
have  the  value  of  just  one-tenth  of  the  original  coin  ;  the 
value  of  all  the  pieces  together  will  be  equal  to  the  value 
of  the  one  whole  piece.     A  large  diamond  is  worth  several 
times  its  weight  of  small  diamonds,  and  once  broken  into 
pieces,  its  original  value  can  never  be  restored. 

5.  These  metals  are  of  uniform    Quality.     Gold  and 
silver  pure  are  always  and  everywhere  the  same.     At  the 
same    time   they  may  be  readily  alloyed  that  they  may 
be  rendered  harder  and  so  better  adapted  to  use  as  money. 
But  they  can  easily  be  refined  and  restored  to  their  origi- 
nal purity  without  loss. 

6.  These  substances  are  of  such  a  nature  that  their  value 


QUALITIES  OF   GOLD   AND   SILVER.  295 

can  be  easily  verified.  They  are  malleable,  easily  wrought 
into  any  shape,  and  capable  of  receiving  and  retaining  a 
distinct  impression.  Their  brilliant  lustre,  their  uniform 
weight  and  their  resistance  to  the  action  of  acids,  make  it 
easy  to  distinguish  them  and  to  detect  adulteration. 

7.  These  metals  are  nearly  Indestructible  by  accident  or 
use.     No  ordinary  fire  consumes  them.     They  are  not  de- 
composed by   atmospheric   influences.     They  wear   away 
very  slowly.     "  It  has  been  ascertained,  from  data  care- 
fully obtained  in  the  bank  of  England,  that 'gold  in  coin 
loses  only  4.16  percent  in  one  hundred  years,  or  about  one 
per  cent  in  twenty-five  years." 

8.  These  two  metals  are  adapted  to  each  other,  for  the 
different  exchanges,  large  and  small,  luhich  the  trade  of  civ- 
ilized countries  requires.     If  gold  should  be  so  minutely 
divided  as  to  represent  very  small  values,  the  pieces  would 
be  counted  with  difficulty,  and  easily  lost.     If  silver  alone 
were  used  for  all  exchanges,  its  great  bulk,  when  large 
values   were   represented,  would   involve   much   inconve- 
nience.    It  is  a  great  advantage  to  have  the  two  metals,  to 
be  used  as  money,  the  one  for  large,  and  the  other  for 
small  values.     If  each  has  its  natural  sphere  defined,  and 
is  held  to  its  own  peculiar  function,  the  slight  variations 
in  their  relative  value,  which  from  time  to  time  occur,  will 
work  no  serious  evil. 

It  is  because  gold  and  silver  possess  these  essential 
qualities  for  the  functions  of  money,  that  they  have  been 
so  long  and  so  universally  employed  as  the  money  of  the 
world.  We  use  them  as  an  instrument  of  exchange,  not 
because  they  bear  a  certain  stamp,  nor  because  government 
has  made  them  a  legal  tender,  but  because  we  know  that 
they  represent  a  given  amount  of  value,  and  that  therefore 
we  can  exchange  them  for  the  same  amount  of  value  when- 
ever we  please.  In  the  strictest  sense,  the  only  Real 
money  consists  of  these  precious  metals  in  the  form  of  coin 


296  EXCHANGE. 

stamped  and  issued  by  government  authority.  The  various 
representatives  and  substitutes  for  this  which  are  employed, 
are  properly  embraced  in  the  broader  term  currency,  and 
will  be  noticed  in  treating  of  credit. 

The  views  given  of  the  nature  and  functions  of  money 
establish  certain  truths  which  are  worthy  of  distinct  state- 
ment. 

.  1.  Since  cost  of  production  is  the  basis  of  value,  in 
every  exchange  the  cost  of  the  money  employed  is  to  be 
regarded  as  equal  to  the  cost  of  the  article  for  which  it  is 
exchanged.  If  a  barrel  of  flour  in  Lima  is  exchanged  for 
ten  dollars,  the  cost  of  producing  the  flour  and  of  trans- 
porting it  to  Lima  is  equal  to  the  cost  of  producing  the 
silver  and  transporting  it.  Mr.  McCulloch  says,  "  What- 
ever may  be  the  advantages  attending  the  use  of  coined 
money,  its  introduction  does  not  affect  the  nature  of  ex- 
changes. Equivalents  are  still  given  for  equivalents.  The 
exchange  of  a  quarter  of  corn  for  an  ounce  of  pure  unfash- 
ioned  gold  bullion  is  undeniably  as  much  a  real  barter  as 
if  it  had  been  exchanged  for  an  ox  or  a  barrel  of  beer. 
But  supposing  the  metal  to  have  been  formed  into  a  coin, 
that  circumstance,  it  is  plain,  could  have  made  no  change 
in  the  barter.  A  coin  is  merely  a  piece  of  metal  of  known 
weight  and  fineness  ;  and  the  commodities  exchanged  for 
it  are  always  held  to  be  of  equal  value." 

2.  Tlie  general  use  by  all  nations  of  the  same  kind  of 
money  as  the  instrument  of  exchange,  and  the  universal 
freedom  of  commerce  everywhere  must  serve  to  equalize  any 
variations  in  the  cost  or  in  the  supply  of  money.  The 
opening  of  new  and  richer  mines,  or  the  use  of  improved 
means  for  extracting  the  metals,  may  cheapen  money. 
The  value  of  money,  like  that  of  any  other  commodity,  is 
also  affected  in  short  periods  by  fluctuations  of  supply  and 
demand.  But  the  commerce  of  the  ivorld  is  the  great  reser- 


PROPORTION   OF   MONEY   TO   AMOUNT   OF   TRADE.        29? 

voir,  the  ocean  encompassing  the  globe,  into  which  all  con- 
tributing streams  of  money  flow,  and  its  level  is  essentially 
the  same  everywhere,  varied  only  by  considerable  lapses  of 
time.  If  there  is  more  money  in  a  country  than  is  needed 
for  its  exchanges,  the  price  of  goods  is  raised  and  it  is  sent 
abroad  for  new  purchases.  If  there  is  a  scarcity  of  money 
in  a  country,  the  price  of  goods  declines  and  money  comes 
in  from  other  lands  to  be  exchanged  for  them.  Thus  by 
a  law  as  simple  and  constant  as  that  of  the  tides,  the 
money-market  regulates  itself,  provided  only  trade  is  free 
and  money  is  real  and  the  same  everywhere. 

3.  The  amount  of  money  in  any  one  country  and  in  all 
countries  is  very  small  in  proportion  to  the  whole  amount 
of  wealth  and  of  values  exchanged.     As  a  standard  of  value 
money  may  be  said  to  regulate  all  exchanges.     As  a  medium 
of  transfer,  it  is  actually  employed  in  comparatively  few, 
and  performs  its  office  with  great  rapidity.     By  the  simple 
process  of  keeping  accounts,   which  are  occasionally  bal- 
anced, a  little  money   suffices  for  the  exchanges  of  any 
community.     By  like  means,  in  yet  greater  degree,  are  the 
large  operations  of  trade  between  different  nations,  con- 
ducted without   the  transportation  of   much  money.     It 
flows  from  one  country  to  another  only  in  the  process  of 
equalization  just  spoken  of.     So  far  as  it  is  employed  in  a 
particular  community,  the  same  money  may  be  used  ten 
times  or  more  in  a  day,  each  time  fulfilling  its  purpose. 
In  general,  the  more  freely  it  flows,  the  more  rapidly  it 
passes  from  hand  to  hand,  the  better  for  the  prosperity  of 
business. 

4.  An  increase  of  the  amount  of  money  in  a  country  is 
of  no  advantage  unless  it  is  demanded  by  an  increase  of 
production  and  of  active  trade.     It  must  be  remembered 
that  money  is  only  an  instrument  or   a  machine  like  a 
plough  or  a  power-loom.     It  is  of  no  advantage  to  a  com- 
munity to  have  a  hundred  ploughs  when  onlv  fifty  can  be 


298  EXCHANGE. 

used,  or  forty  looms  when  twenty  will  do  all  the  work. 
So,  if  one  million  dollars  serves  all  the  purposes  of  exchange 
in  a  city,  to  double  the  amount  of  money  will  bring  no 
benefit.  If  it  is  a  city  isolated  from  the  rest  of  the  world, 
such  an  increase  will  merely  double  prices,  that  is,  twice 
as  much  money  will  be  used  in  every  exchange.  If  its 
trade  with  other  places  is  free,  the  superfluous  money  will 
float  away  on  the  tide  of  commerce  to  some  point  where  it 
is  needed,  just  as  a  surplus  of  wheat  or  cotton  goods  or 
any  other  commodity  must  do. 

5.  The  abundance  or  scarcity  of  momy  in  a  country  is 
not  of  itself  a  trustworthy  index  of  prosperity.     We  need 
to  look  back  of  the  fact  to  its  cause.     If  money  is  abundant 
because  business  is  stagnant  and  exchanges  are  few,  it  is  a 
sign  of  adversity  rather  than  of  prosperity.     If  a  scarcity 
of  money  is  caused  by  an  increase  of  products  and  great 
activity  of  trade,  it  indicates  a  prosperous  condition.     In 
countries  containing  rich  mines  of   the  precious  metals, 
money  or  the  material  for  money  becomes  a  product  of 
regular  industry,  and  its  abundance  is  a  favorable  sign.     In 
another  country  money  may  be  very  scarce,  because  from 
its  scanty  resources  or  on  account  of  the  degradation  of  its 
people,  little  is  produced  which  can  be  exported  to  bring 
money  in  exchange.     In  this  case  the  scarcity  of  money  is 
a  sign  of  poverty. 

6.  The  oft-repeated  maxim,  "  It  matters  not  ivhat  be- 
comes of  property,  so  long  as  the  money  is  in  the  country," 
is  false  and  mischievous.     The  great  fire  of  1872,  in  Chi- 
cago, within  thirty-six  hours,  consumed  property   valued 
at   about   two  hundred   million    dollars.     But  the  vaults 
and  safes  of  the  banks  protected  the  money  of  the  city  so 
that  at  most,  a  few  thousand  dollars  would  cover  all  that 
was  lost  in  that  form.     Did  the  fact  that  the  money  was 
saved  compensate  in  the  least  for  that  wasteful  destruc- 
tion of  everv  other  kind  of  wealth  ?     Contributions  from 


AGENCY    OF   GOVERNMENT.  299 

all  parts  of  the  world  provided  immediate  necessities  for 
the  relief  of  suffering.  With  means  obtained  largely  by 
credit,  the  city  was  rapidly  rebuilt.  The  pressure  of  the 
burden  of  loss  was  thus  eased  and  postponed  for  a  time. 
But  at  length  by  the  embarrassments  and  failures  of  1876-7, 
the  people  of  that  city  and  many  in  other  parts  of  the 
country  were  made  to  understand  that  it  does  matter  what 
becomes  of  the  property  of  a  country.  Labor  and  capital 
valued  at  a  million  dollars  may  have  been  expended  inset- 
ting up  a  great  manufactory  which  has  proved  an  utter 
failure.  So  much  property  is  thereby  lost.  Are  not  those 
who  so  invested  their  capital  and  the  whole  community  so 
much  poorer  for  that  useless  outlay  ?  Does  the  fact  that 
the  money  paid  out  in  erecting  and  putting  up  the  estab- 
lishment is  still  circulating  among  the  people  change  the 
essential  feature  of  a  dead  loss  ?  That  money  was  but  the 
instrument  by  which  so  much  wealth  was  thrown  away  ; 
whatever  other  purposes  it  may  serve,  it  cannot  now  bring 
back  to  the  owners  what  they  have  lost.  If  a  thief  in  the 
night  had  emptied  your  store-house  with  a  wheel-barrow, 
you  could  not  easily  be  convinced  that  it  made  no  differ- 
ence, you  were  no  poorer,  since  he  had  left  the  wheelbar- 
row behind. 

It  is  the  complications  of  credit  with  money,  hereafter 
to  be  considered,  which  mystify  most  minds  on  this  sub- 
ject and  really  produce  a  great  part  of  the  apparent  varia- 
tions in  the  value  of  money,  in  different  countries  and  at 
different  epochs. 

The  Agency  of  Government  with  respect  to 
Money. — Men  use  money  in  exchanges,  for  the  same 
reason  that  they  use  hammers  for  the  purpose  of  driving 
nails,  because  they  find  that  they  thus  save  time  and  labor. 

Had  governments  no  agency  at  all  in  the  matter,  the 
precious  metals,  as  an  instrument  of  exchange,  might  have 


300  EXCHANGE, 

been  both  introduced,  and  universally  employed  ;  and  they 
would  have  been  so  introduced  and  employed,  as  they  act- 
ually were  in  the  time  of  Abraham.  Hence,  as  we  have 
before  remarked,  these  metals  derive  their  use  as  money 
from  their  inherent  fitness,  and  the  desire  of  men  so  to 
employ  them,  and  not  from  any  agency  of  government. 
While,  however,  this  is  the  case,  and  while  this  is  always 
to  be  borne  in  mind,  there  is  yet  some  agency,  which 
society,  or  government,  which  is  its  agent,  may  exert,  that 
shall  increase  the  convenience  of  whatever  may  be  used 
as  money. 

This  agency  has  reference  to  two  objects. 

First,  Whenever  any  substance  has  been  found  univer- 
sally adapted  for  the  purposes  of  exchange,  it  is  important 
that  it  should  be  used  by  all  men,  unless  something  to  the 
contrary  be  specified  by  particular  contract.  If  I  owe  a 
man  for  a  hat,  and  when  I  come  to  pay  him,  lie  demands 
payment,  not  in  silver,  but  in  beaver  skins,  I  may  not  be 
able  to  procure  them  and  he  may  hold  me  his  debtor  and 
deal  with  me  accordingly.  If,  instead  of  paying  him  in 
silver,  I  offer  him  leather,  and  declare  that  I  will  pay  him 
nothing  else,  he  will  be  defrauded  out  of  his  due.  Now, 
to  prevent  disputes  without  end,  it  is  desirable  that  some- 
thing be  fixed  upon,  the  tender  of  which  shall  discharge 
forever  the  debtor's  obligation.  And  as  this  would  most 
naturally  and  most  justly  be  the  substance  which  all  men 
accept  as  money,  this  is  most  properly  chosen.  Hence, 
society  or  government  has  a  right  to  establish  the  precious 
metals  as  a  Legal  Tender  ;  that  is,  to  enact  that  if  a  man 
declares  that  I  owe  him  ten  dollars,  and  I  offer  him  ten 
silver  dollars,  if  he  chooses  not  to  receive  them,  I  am 
under  no  obligation  to  give  myself  any  more  trouble  about 
it.  The  tender,  on  my  part,  is  a  full  release.  I  am  under 
no  obligation  to  offer  anything  else  ;  and  he  lias  no  right 
to  demand  anything  else.  Nor  is  there  in  this  any  oppres- 


COINAGE.  301 

sion.  If  a  man  wishes  to  bo  paid  in  something  besides 
money,  he  can  always  specify  it  in  the  contract,  and  thus 
his  object  can  be  accomplished.  The  whole  effect  of  such 
a  law  is  to  prevent  disputes,  and  to  enact  what  shall  be  a 
full  and  valid  release  from  obligation,  when  nothing  spe- 
cific has  been  agreed  upon. 

Second,  The  utility  of  whatever  is  used  as  money 
will  be  greatly  increased  by  its  careful  preparation  for  its 
purpose.  This  is  accomplished  by  the  process  called 
coining. 

It  is  evident  that  the  preparation  of  coin  for  the  public 
use  could  never  be  safely  entrusted  to  individuals.  The 
temptations  to  dishonesty  are  too  great  for  ordinary  human 
virtue.  Such  a  work  should  be  executed  by  those,  whose 
interest  would  lead  them  to  perform  it  with  the  greatest 
possible  fidelity.  Hence,  in  all  civilized  countries,  indi- 
viduals have  surrendered  the  right  of  coining  money  to 
the  government,  to  be  exercised  by  agents  appointed  for 
that  purpose.  These  agents  should  be  men  of  science  and 
skill,  acting  in  such  circumstances  that  their  interest  will 
be  strongly  on  the  side  of  honesty,  and  under  such  super- 
vision that  any  failure  of  either  skill  or  integrity  can  be 
easily  detected. 

In  coining  the  precious  metals  to  make  them  money, 
the  government  must  have  regard  to  the  convenience  of  the 
public  in  three  particulars,  viz.,  the  Quality  of  the  coin, 
its  Size  and  its  Form. 

1.  The  metal  of  the  coinage  must  le  of  uniform  purity. 
Were  it  otherwise,  every  piece  must  be  tested  by  chemical 
analysis.  Since  money  is  liable  to  loss  from  wear,  and 
since  it  is  very  difficult  to  bring  the  precious  metals  to  a 
condition  of  absolute  purity,  it  is  found  of  advantage  to 
mingle  some  portion  of  alloy  with  the  metal  as  it  is  pre- 
pared for  coining.  This  renders  the  metal  harder,  and 
makes  it  feasible  to  set  the  standard  of  purity  at  an  exact 


302  EXCHANGE. 

point.     The  degree  of  this  adulteration  should,  however, 
be  fixed  by  law,  making  it  invariable  and  publicly  known. 

2.  The  coins  must  lie  of  Sizes  most  convenient  for  the 
purposes  of  exchange.     If  made  too  large,  they  cannot  well 
be  carried  about ;  if  too  small,  they  are  easily  lost  and  in- 
volve much  time   and  trouble  in  counting.     Hence,  the 
advantage  of  using  two  or  three  different  metals,  gold  for 
the  higher  values,  silver  for  a  lower  grade,  and  copper  for 
the  lowest  of  all.     The  relative  proportion  of  the  pieces  to 
each  other  should  be  adjusted  so  that  all  can  be  conve- 
niently enumerated.     On  this  account,  the  decimal  system 
adopted  in  the  United  States  and  in  France  is  probably 
preferable  to  any  other.     The  size  once  fixed  upon  should 
remain  invariable. 

3.  The  coins  should  bear  such  Forms  that  each  piece  shall 
indicate  distinctly  its  value.     If  any  portion  of  the  metal 
has  been  feloniously  abstracted,  the  fact  should  appear  in 
a  change  of  form.     For  convenience  in  counting  and  pil- 
ing, flat  coins  are  preferable.     To  present  the  least  surface 
to  friction,  some  thickness  is  desirable.     The  surface  needs 
to  bear  some  variety  of  impression,  so  that  if  the  metal 
is  filed  or  worn  away,  it  may  be  apparent  ;  the  same  pur- 
pose  is  subserved-  by  milling   the  edges.     The  effect  of 
friction  is  further  obviated  by  raising  a  rim  on  the  edge  of 
the  coin.     It  would  be  of  advantage  also,  if  the  amount  of 
pure  metal  in  every  piece  were  stamped  upon  its  face,  so  as 
to  give  assurance  that  the  quality  of  the  coin  is  unimpaired. 

The  true  office  of  the  government  in  this  business  of 
coining  money  is  simply  to  promote  the  convenience  of  the 
public  by  verifying  and  giving  definite  form  to  that  which 
is  the  world's  chosen  standard  of  value  and  medium  of  ex- 
change. In  principle,  it  is  precisely  the  same  thing  which 
it  does  in  establishing  standard  measures  of  length,  sur- 
face, weight  and  capacity.  Its  action  in  the  two  cases 
differs  only  in  this,  that  with  respect  to  the  other  meas- 


COINAGE.  303 

ures,  it  can  safely  leave  anybody  to  manufacture  the  instru- 
ments to  be  used,  if  they  will  but  bring  them  to  be  veri- 
fied by  comparison  with  its  established  standard  ;  but  in 
the  case  of  money,  there  is  a  special  liability  to  fraud  and 
deception,  which  is  best  obviated  by  the  government  pre- 
paring, under  its  own  authority  and  supervision,  the  instru- 
ments which  are  to  be  used  in  measuring  values. 

Since  the  manufacture  of  coins  requires  considerable 
labor  with  expensive  machinery,  and  since  the  metal  coined 
has  additional  value  from  the  means  of  verification  con- 
ferred upon  it,  which  inures  to  the  benefit  of  the  owner,  it 
is  right  that  the  owner  should  pay  for  the  service  ren- 
dered. It  is  common  therefore,  when  a  person  brings  bull- 
ion to  the  mint  to  be  coined,  for  the  government  to  require 
a  small  payment  for  the  operation.  This  charge  is  techni- 
cally called  Seignorage.  It  should  be  no  more  than  just 
sufficient  to  defray  the  expenses  of  the  work,  otherwise 
private  individuals  will  be  tempted  to  undertake  the  busi- 
ness for  gain.  The  machinery  and  processes  for  coining 
under  the  direction  of  the  government  are  now  brought  to 
such  perfection,  that  the  actual  expense  is  very  trifling. 
It  is  computed  to  amount  to  only  one-fifth  of  one  per  cent 
for  gold  coins,  and  this  is  now  the  rate  charged  by  the 
United  States  government. 

In  continual  use,  coin  becomes  worn  so  that  its  impres- 
sion is  effaced  and  its  value  is  diminished.  When  thus 
unfitted  for  circulation,  it  is  but  fair  that  the  government 
should  make  arrangements  under  certain  limitations,  to 
repair  the  loss  at  its  own  expense.  It  would  not  be  right 
that  the  entire  loss  should  fall  on  the  last  holder.  Accord- 
ingly, by  law,  gold  coins  of  the  United  States  are  receiva- 
ble at  the  treasury,  at  their  denominational  value,  when 
not  reduced  in  weight,  after  a  circulation  of  twenty  years, 
as  shown  by  the  date  of  coinage,  more  than  one  half  of  one 
per  centum. 


304  EXCHAXGE. 

The  government  must  also  have  some  authority  to  con- 
trol the  circulation,  within  its  own  territory,  of  foreign  coins. 
Otherwise,  worn  and  depreciated  coin  of  other  countries 
may  come  in  and  drive  out  its  own  superior  money.  Some 
years  ago,  our  country  was  flooded  with  Spanish  and 
Mexican  silver  coins  greatly  worn,  which  caused  our  own 
better  coin  to  disappear.  The  evil  was  relieved  by  an  act 
ordering  that  the  foreign  pieces  should  be  received  only  at 
a  discount  of  twenty  per  cent  on  their  face  value,  though 
they  had  really  lost  only  ten  per  cent.  The  old  coins  were 
immediately  collected  and  melted  up. 

In  the  operations  of  international  commerce  hitherto, 
great  inconvenience  has  been  caused  by  the  heterogeneous 
character  of  the  monetary  systems  of  different  countries,  in- 
volving troublesome  fractional  operations  in  reducing  the 
coinage  of  one  counti-y  to  tljat  of  another.  This  matter  has 
attracted  much  attention  of  late,  and  earnest  attempts 
have  been  made  to  bring  the  civilized  nations  of  the  world 
to  adopt  a  system  of  correlated  international  coinage. 
This  would  require  only  that  each  nation  should  adjust  its 
coinage  to  the  same  gold  standard,  determine  the  units  of 
its  system  so  that  they  shall  all  possess  simple  numerical 
relations,  as  to  weight,  with  the  gramme,  the  metric  unit 
of  weight,  and  give  a  decimal  character  to  the  standard  of 
purity,  that  is,  to  make  the  coins  of  nine  parts  pure  metal, 
(gold  or  silver  as  the  case  may  be)  and  one  part  alloy.  A 
slight  change  in  the  systems  of  the  leading  commercial 
nations  would  secure  this  uniformity,  and  we  trust  at  no 
distant  day,  it  will  be  accomplished.  If  with  this  change, 
there  could  also  be  more  fully  adopted  a  uniform  system 
of  weights  and  measures,  the  exchanges  of  the  world 
would  be  greatly  facilitated. 

The  legitimate  agency  of  government  with  respect  to 
money  extends  not  much  beyond  the  action  we  have  con- 
sidered. Laws  forbidding  the  exportation  or  importation 


QUESTION   OF   DOUBLE  STANDARD.  305 

of  money  are  unjust  and  mischievous.  Money,  like  any 
other  commodity,  if  let  alone,  will  regulate  itself.  It  will 
be  sent  abroad  or  brought  into  a  country,  just  as  will  be 
most  for  the  common  advantage.  Such  restrictions  inter- 
fere with  individual  property-rights.  A  man  has  the  same 
right  over  the  money  he  may  possess,  that  he  has  over  his 
cotton  or  wheat,  or  any  thing  else,  that  is,  a  right  to  ex- 
change either  with  any  one  or  for  anything  on  which  the 
parties  may  agree,  as  may  seem  for  his  advantage. 

There  may  be  occasion  for  a  government,  at  times,  to 
alter  the  value  of  its  coinage.  But  this  ought  never  to  be 
done  arbitrarily,  nor  for  the  advantage  of  the  government 
itself,  nor  of  any  class  or  party,  but  solely  to  subserve  the 
public  convenience  or  advantage.  Such  changes  neces- 
sarily interfere  with  private  contracts  and  in  the  relation 
of  creditors  or  debtors,  wrong  one  side  or  the  other. 
These  interests,  therefore,  should  be  carefully  protected  in 
any  acts  changing  the  value  of  money. 

For  the  same  reason,  it  is  obvious  that  nothing  but  ex- 
treme necessity  involving  the  very  existence  of  the  nation 
can  warrant  a  government  in  making  anything  but  gold 
and  silver  a  legal  tender.  In  such  an  exceptional  case, 
when  the  exigency  is  passed,  sound  policy  demands  that 
the  general  finances  of  the  country  be  restored  to  the  basis 
of  real  money,  with  as  little  delay  and  with  as  little  shock 
as  possible. 

The  question  of  a  Double  Standard. — We  have 
seen  that  the  use  of  both  gold  and  silver  as  money,  for 
convenience  in  the  adjustment  of  exchanges  where  different 
degrees  of  value  are  concerned,  is  highly  advantageous, 
almost  indispensable.  Should  the  standard  of  value  be 
defined  in  terms  of  each  metal  and  both  be  made  legal 
tender  to  an  unlimited  extent  ?  This  is  a  distinct  ques- 
tion, and  one  of  no  little  importance. 


306  EXCHANGE. 

As  these  pages  are  passing  through  the  press,  our  coun- 
try is  much  agitated  about  a  proposed  law  for  the  "  re- 
monetization  of  silver,  designed  to  withdraw  existing 
restrictions  on  the  coinage  of  that  metal  and  to  make  sil- 
ver coin  an  unlimited  legal  tender.  It  will  not  be  perti- 
nent here,  to  discuss  this  as  a  political  measure,  complica- 
ted with  past  acts  of  Congress  on  the  subject,  and  with 
the  difficult  problem  of  a  return  to  specie  payments  after 
large  issues  of  a  paper  currency  which  the  law  has  made  a 
legal  tender  for  several  years.  Two  or  three  phases  of  the 
matter  may,  however,  be  properly  noticed  in  the  light  of 
principles  already  defined. 

However  it  may  be  accounted  for,  the  fact  is  that  the 
value  of  our  smaller  silver  coins  now  stands  at  about 
eight  per  cent  below  the  standard  of  gold.  Even  the 
trade-dollar,  so  much  called  for,  though  it  contains  a 
larger  proportion  of  pure  metal,  is  still  four  per  cent 
inferior  to  gold.  Silver  has  been  legally  for  four  years, 
practically  for  forty  years  a  tender  only  for  small  amounts. 
In  these  circumstances,  as  its  first  effect,  the  proposed 
measure  would  simply  warrant  the  payment  of  the  debts 
of  the  government,  and  of  all  private  debts  with  a  depre- 
ciated money.  So  far,  it  impairs  existing  contracts  and 
works  a  wrong  of  the  same  kind  with  that  involved  in  the 
action  of  kings  of  the  middle  ages  when  they  debased  the 
coin  of  the  realm.  Seen  in  its  true  light,  the  measure  in- 
volves this.  It  says  to  every  debtor,  as  did  the  defaulting 
steward  of  Christ's  parable,  "Sit  down  quickly  and  take 
thy  bill  and  write  ninety-two  for  every  hundred."  In  this 
aspect,  the  measure  is  unjust  and  conflicts  with  the  funda- 
mental principles  of  our  science.  Is  the  necessity  of  the 
case  so  extreme  as  to  justify  it  ? 

Besides,  it  is  a  law  as  fixed  as  the  law  of  gravitation, 
that  when  two  kinds  of  money  of  different  valuation  are 
thrown  together  without  limitation,  into  the  trade  of  a 


OBJECTIONS  TO   A    DOUBLE   STANDARD.  307 

country,  the  more  valuable,  as  the  heavier,  will  sink  and 
disappear,  leaving  only  the  lighter  to  float  on  the  surface 
of  current  exchange.  Thus  the  requisition  that  silver  coin 
shall  pass,  tinder  no  restriction,  at  the  same  nominal  rate 
with  gold  coin,  which  has  a  superior  value,  must  inevitably 
drive  out  the  better  money  and  leave  the  country  with  only 
silver  money.  Silver  must  flow  in  from  everywhere  to 
displace  the  gold  we  now  have.  For  in  most  of  the  civil- 
ized nations  with  which  our  people  have  commerce,  silver 
is  by  law,  or  by  established  usage  which  has  the  force  of 
law,  employed  only  as  a  subsidiary  coinage  for  exchanges 
of  limited  value.  The  effect  of  the  measure  would  thus 
be  to  bring  into  universal  use  in  our  country,  a  money 
which  is  not  generally  acceptable  to  other  nations,  and  so 
to  throw  our  industry  out  of  relation  to  the  commerce  of 
the  world,  except  at  a  disadvantage. 

Furthermore,  we  have  seen  that  it  is  of  the  highest 
importance  that  the  standard  of  value  be  as  invariable  as 
possible.  Gold  and  silver  are  both  liable  to  some  fluctua- 
tions as  the  cost  of  their  production  varies,  but  experience 
has  shown  that  of  the  two,  gold  is  the  more  stable  and 
hence  prefe7'able  for  the  standard.  The  attempt  to  unite 
the  two  in  a  double  standard  involves  the  special  difficulty 
of  determining  and  maintaining  the  relative  values  of  the 
two  metals.  But  the  ratio  of  these  two  values  is  very  in- 
constant. However  carefully  adjusted  at  one  time,  it 
is  impossible  to  keep  it  fixed.  As  soon  as  any  material 
difference  appears,  the  cheaper  will  be  chosen  for  the  pay- 
ment of  obligations,  and  the  dearer  will  be  transferred  to 
other  countries  or  melted  up  because  it  has  a  higher  value 
as  bullion  than  as  coin.  Hence  the  necessity  of  frequent 
interferences  of  the  government  with  the  money  of  a 
country,  to  the  disturbance  of  its  true  functions.' 

These  fluctuations  might  be  relieved  in  part,  if  all 
countries  ivere  to  adopt  the  double  standard.  Then  money 


308  EXCHANGE. 

of  either  kind,  being  acceptable  everywhere,  whichever 
was  in  excess  in  one  country,  might  find  its  way  to  some 
other  country  where  there  might  be  a  deficiency.  Even 
then,  however,  there  would  be  a  necessity,  from  time  to 
time,  for  some  kind  of  a  congress  of  nations  to  determine 
the  relative  value  of  these  metals.  For  one  country  by 
itself  to  adopt  the  double  standard  without  qualifications, 
must  inevitably  work  to  its  disadvantage,  by  embarrassing 
the  movements  of  exchange  with  other  parts  of  the  world. 
The  employment  of  silver  as  a  subsidiary  coin,  making 
it  a  legal  tender  in  exchanges  within  defined  limits  of 
value,  involves  no  such  evils  and  secures  in  the  highest 
degree,  the  advantages  of  the  two  metals,  as  each  becomes 
the  complement  of  the  other,  each  fulfilling  its  function  as 
money,  in  a  sphere  to  which  the  other  is  not  adapted. 


CHAPTER    XXI. 

CREDIT  AS  AN  INSTRUMENT   OF  EXCHANGE. 

The  Nature  of  Credit. — In  its  generic  sense,  Credit 
is  Reliance  on  the  truthfulness  and  integrity  of  one's  fel- 
low-men. Some  exercise  of  it  is  essential  to  the  very  exist- 
ence of  society.  With  the  advance  of  civilization  it  works 
naturally  and  necessarily  into  all  the  mutual  relations  of 
mankind,  and  especially  into  their  business  intercourse. 
According  to  its  extent  and  the  soundness  of  its  basis,  it 
becomes  a  sign  of  the  social  condition  and  character  of  a 
people.  It  marks  the  chief  distinction  between  civilized 
and  savage  life. 

The  simplest  services  cannot  be  interchanged  without 
credit.  If  you  hire  a  laborer  to  do  a  day's  work,  you  must 
trust  him  as  one  able  and  faithful  to  do  what  you  wish, 
and  he  must  trust  you  for  his  pay  until  the  end  of  the 
day.  When  you  take  your  horse  to  the  blacksmith  to  be 
shod,  you  commit  your  property  to  his  charge,  confident 
that  he  will  not  abuse  the  animal,  and  he  lays  out  his  labor 
and  skill,  assured  that  you  will  not  drive  off  with  the  bene- 
fit of  his  work  without  making  due  compensation.  The 
merchant  puts  his  goods  into  your  hands,  believing  that 
you  will  hand  him  in  return,  the  money  which  is  their 
price.  So  in  every  kind  of  transaction  between  man  and 
man,  there  is  an  interval,  it  may  be  a  minute,  it  may  be  a 
year,  it  may  be  a  term  of  years,  during  which  trust  on  one 
or  both  sides  must  be  exercised. 

As  a  technical  term  of  Political  Economy,  Credit  is 


310  EXCHANGE. 

Trust  in  the  promise  of  an  equivalent  to  le  rendered  at  a 
future  time  for  values  immediately  transferred.  En  the 
machinery  of  Exchange,  credit  is  thus  a  substitute  for 
money,  with  which  it  is  more  or  less  combined  in  all  oper- 
ations, exerting  a  mighty  power  for  good  or  evil.  It  is 
the  chief  cause  of  fa&  fluctuations  of  trade.  As  an  instru- 
ment of  exchange,  it  is  indispensable  and  yet  it  must  be 
regarded  as  a  dangerous  instrument,  needing  to  be  used 
always  with  some  precaution. 

In  further  treating  the  subject,  we  shall  present,  first 
the  Forms  of  credit,  second  the  useful  Functions  of  credit, 
and  third,  the  mischievous  Abuses  of  credit.  The  suc- 
ceeding chapter  will  be  occupied  with  Banks  as  the  Agents 
of  credit. 

The  leading  Forms  in  which  credit  enters  into  the 
operations  of  Exchange  are 

1.  Book-Accounts.     A  seller  extends  credit  to  a  buyer 
for  such  time  as  they  may  agree  that  the  account  shall 
run.     The  butcher  wants  the  baker's  bread  and  the  baker 
wants  the  butcher's  meat.     Each  makes  his  morning  pur- 
chase of  the  other  to  be  charged  in  account.     On  the  day 
of  settlement,  the  balance  is  struck  and  the  deficiency,  on 
whichever  side  it  may  be,  is  paid  in  money,  or  carried  to 
new  account.     So  a  farmer  may  anticipate  the  returns  of 
his  harvest  by  a  running  account  at  the  store.     In  this 
case,  the  promise  is  implied  in  the  direction  to  make  each 
charge. 

2.  Loans.     A  lender  gives  credit  to  the  borrower  on 
the  strength  of  his  formal  promise,  generally  written,  to 
pay  at  a  definite  time  in    the  future  Avith   interest,   the 
money  now  advanced.     Thus  a  farmer  may  have  a  surplus 
of  products  not  needed  for  his  own  use.     These  he  turns 
into  money  and  lends  it  to  the  blacksmith  for  the  purchase 
of  tools  and  materials  to  set  him  up  in  business,  trusting 


FORMS   OF   CREDIT.  311 

in  his  ability  to  refund  him  from  the  products  of  his  work. 
The  promise  may  be  sustained  by  security  pledged,  as  a 
chattel-mortgage  or  a  mortgage  on  real  estate. 

3.  Mercantile  Paper.     Goods  are   transferred   from  a 
manufacturer  or  an  importer  to  a  jobber,  or  from  a  job- 
ber to  a  retailer,  to  be  paid  for  after  thirty,  sixty  or  ninety 
days,  out  of  the  avails  of  a  second  sale.     In  this  case,  the 
promise    takes  the  form  of    a   negotiable   note,  and   the 
extent  of  the  credit  will  be  limited  by  the  character  and 
ability  of    the  buyer.     This  paper  may  be  and  often   is 
passed  to  other  hands,  according  to  the  exigencies  of  the 
holder,  and  thus,  to  a  limited  extent,  it  floats  in  the  com- 
munity as  a  marketable  article,  subject  to  the  regular 
dealings  of  brokers  and  money-lenders. 

4.  Bank-deposits.     The    depositor    gives    his    banker 
credit  for  money  put  into  his  hands,  to  be  paid  on  his  order, 
and  accepts  a  certificate  or  an  entry  in  his  bank-book,  as 
the  promise,  the  voucher  for  the  transaction.     The  orders 
by  which  these  deposits  are  drawn  out  are  called  checks, 
by  means  of  which,  credit  in  this  form,  may  float  about 
with  a  limited  circulation,  at  home  ;  and  as  the  basis  of 
bills  of  exchange,  hereafter   to  be  more  fully  explained, 
credit  may  thus  reach  round  the  globe,  performing  a  very 
important   part  in  the  exchanges   of  individuals  and   of 
nations. 

5.  Stocks.     A  number  of  individuals  may  enter  into 
association,  combining  their  capital  for  banking,  manufac- 
turing, building  a  railway  or  any  other  business.     Each 
gives  credit  to  the  association  for  the  capital  he  puts  in 
and  accepts  a  certificate  of  stock  as  the  promise  or  voucher 
of  the  association.     His  trust  is  in  the  honesty  and  skill 
of  the  officers  and  directors  to  make  the  business  safe  and 
profitable.     These    stock-certificates,    being   transferable, 
may  pass  into  other  hands  or  be  thrown  upon  the  market, 
at  the  will  of  the  holder.     Thus  credit  may  become  itself 


312  EXCHANGE. 

airarticle  of  merchandise  with  a  current  price,  determined 
by  the  public  estimate  of  its  safety,  or  expectation  of  its 
profitableness,  which  will  fluctuate  under  the  influence  of 
various  causes,  natural  and  artificial. 

6.  Bonds   issued   by   corporations,    cities,    states    and 
nations.     Whoever  receives  and   holds   these   for   money 
paid  gives  credit  to  the  body  corporate  or  politic,  whose 
promise  is  embodied  in  the  bond.     Their  value  is  estima- 
ted by  the  degree  in  which  they  command  the  public  con- 
fidence, and  they  bear  a  price  accordingly.     These,  like 
stocks,  are  made  articles  of  merchandise  in  a  regular  and 
legitimate  trade.     They  are  sought  by  many  for  the  in- 
vestment of  money,  because  they  combine  the  advantages 
of  known  security,  long  time  and  ease  of  transfer.     When 
however,  for  any  reason,  they  become  uncertain  or  unsta- 
ble, they  are  made  the  sport  of  wild  and  reckless  specula- 
tion.    In  such  cases,  credit  furnishes  the  instruments  for 
stock- gamblers  to  play  with. 

7.  Promissory  Notes  issued  by  banks  or  governments, 
and  designed    to  pass  from   hand  to  hand  as  Currency. 
The  public,  receiving  and  using  these,  gives  credit  to  the 
banks  or  governments,  and  confidence  rises  or  falls  with 
all  causes  which  affect  the  ability  or  the  stability  of  the 
promissor.     We  include  here,  all  the  forms  of  paper  money 
— the  purely  Credit  currency,  like  our  greenbacks,  where 
the  promise  rests  on  the  simple  wording  of  the  paper — 
Mixed  currency,  like  that  of  the  old  state-banks  and  of 
our  present  national  bank  notes,  where  the  promise  is  sus- 
tained by  a  quota,  great  or  small,  of  bullion  or  by  govern- 
ment   bonds,    held   for    its    fulfillment — and   Mercantile 
currency,  as  it  is  sometimes  called,  like  the  notes  of  the 
bank  of  Hamburg,  where  is  kept  in  the  vault  of  the  bank 
a  gold  dollar  for  every  paper-promise  of  a  dollar  in  circu- 
lation.    These   all    involve    credit,    they    differ    only   as 
respects  the  ground  for  trust,  in  actual  resources  for  the 


FUNCTIONS  OF  CREDIT.  313 

fulfillment  of  the  promise.  In  this  form,  credit  flies  every- 
where and  attaches  itself  to  every  transaction  of  business  ; 
safe  and  helpful,  or  liable,  like  a  bubble,  to  sudden  infla- 
tions and  collapses,  according  as  it  is  restricted  and  regu- 
lated, or  left  to  the  freaks  and  fancies  of  men's  fluctuating 
hopes  and  impulses. 

Under  one  or  other  of  these  "heads,  all  the  forms  of 
credit  in  common  use  may  be  classed.  The  concise  state- 
ment brings  out  both  their  distinctive  and  their  common 
features. 

In  all  cases,  the  true  basis  of  credit  is  real  ivealth,  ex- 
isting or  prospective,  which  is  or  is  expected  to  be  at  the 
command  of  the  party  trusted.  Its  essence  is  confidence 
in  the  ability,  truthfulness  and  integrity  of  the  party 
trusted.  When  either  of  these  is  weakened,  credit  wavers. 
Just  in  proportion  as  credit  is  pushed  out  by  the  sanguine 
hopes  and  expectations  of  men,  beyond  the  solid  ground  of 
existing  values,  it  tends  to  become  illusive  and  dangerous. 

The  useful  Functions  of  Credit. — As  we  take  up 
this  topic,  a  few  words  are  needed  to  clear  away  some  con- 
fused and  erroneous  notions  which  are  quite  commonly 
entertained. 

Credit  is  not  Capital.  It  is  only  a  means  of  transfer- 
ring capital  from  one  person  who  cannot  use  it  to  another 
who  can.  If  a  man  has  borrowed  ten  thousand  dollars 
to  set  up  a  flouring  mill,  the  property  in  the  mill  is  so  far 
not  his  own,  nor  are  the  proceeds  of  running  the  mill  all 
his  own.  The  interest  to  be  paid  on  this  borrowed  capital 
is  so  much  added  to  the  necessary  outlays  of  his  business. 
His  returns  must  be  by  so  much  reduced. 

Credit  does  not  of  itself  create  Capital.     It  cannot  by 

any   magical    power,    make   something   out   of    nothing. 

Wealth  does  not  grow  by  the  mere  act  of  passing  from 

hand  to  hand.     Its  increase   comes  only  from  its  union 

14 


314  EXCHANGE. 

with  labor.     The  transfer  may  favor  such  a  union  ;  it  can 
do  no  more. 

The  same  capital  cannot  be  used  both  by  the  owner  and 
by  him  to  whom  it  is  lent,  at  the  same  time.  It  is  plain 
that  a  farmer  who  has  lent  his  plough  to  a  neighbor,  can- 
not, at  the  same  time  use  his  plough  on  his  own  field. 
No  more  can  B  use  for  his  own  purposes  the  thousand 
dollars  which  he  lent  to  A.  He  may  use  A's  note  as 
security  in  borrowing  the  same  amount  of  C,  and  C  may 
use  it  again  to  borrow  of  D,  and  so  the  series  may  be  ex- 
tended to  Z.  But  there  is  only  one  thousand  dollars  of 
capital  to  be  recognized,  and  the  whole  series  of  transac- 
tions is  settled  by  a  single  act,  when  A  pays  that  amount 
to  Z,  the  last  holder  of  his  note. 

But  indirectly,  credit  when  held  to  its  legitimate  func- 
tions, does  render  important  services  to  all  departments  of 
industry. 

1.  Credit  brings  wealth  into  the  form  of  Capital  and 
makes  it  available  for  the  increase  of  wealth.  Many  persons 
possessing  wealth  are  in  circumstances  which  forbid  their 
employing  it  themselves  in  a  way  to  make  it  productive. 
Widows,  minors,  aged  persons,  professional  men  otherwise 
occupied  and  unfamiliar  with  trade  and  manufactures,  are 
often  the  owners  of  property  from  which  they  need  an  in- 
come, but  they  cannot  by  their  own  labor,  make  it  produc- 
tive. In  every  community,  there  are  many  engaged  in  vari- 
ous forms  of  active  labor,  who  can,  year  by  year,  lay  by  little 
savings,  but  they  cannot  bring  these  savings  at  once  into 
union  with  their  own  labor.  If  there  were  no  such  tiling  as 
credit,  or  if  from  want  of  mutual  confidence  among  men, 
it  were  scantily  practised,  all  this  wealth  in  the  aggregate 
amounting  to  millions  of  value,  must  be  idle,  or  be  wasted 
in  unskillful  and  unsuccessful  attempts  to  make  it  yield  a 
profit.  The  various  forms  of  credit  furnish  facilities  for 
transferring  whatever  surplus  wealth  any  one  may  have  to 


FUNCTIONS   OF  CREDIT.  315 

the  hands  of  those  producers  or  traders,  who,  in  active 
business,  have  the  means  of  employing  it  to  best  advan- 
tage. Thus  while  credit  is  not  itself  capital  and  cannot 
create  capital,  it  does  greatly  increase  the  sum  of  wealth 
available  as  capital  for  profitable  uses,  much  to  the  benefit 
of  both  borrower  and  lender. 

2.  Credit  gives  efficiency  to  the  industrial  talent  of  a 
country.     Many  a  person  who  has  strength  and  skill,  and 
all  needed  qualifications  for  business,  has  no  capital  of  his 
own.     "Without  credit,  his  peculiar,  it  may  be  eminent 
capacities  must  be  partially  or  wholly  unemployed.     By 
means  of  credit,  however,  he  is  enabled  to  obtain  control 
of  capital,  on  which  his  energies  may  be  expended  so  as  to 
bring  in  large  returns  both  for  himself  and  for  whoever 
trusts  property  to  his  hands.     In  our  country,  those  who 
have  proved  most  effective  in  increasing  wealth  have  been 
almost  invariably,  persons  who  have  begun  business  with 
only  their  own  energies  and  a  character  to  inspire  the  con- 
fidence of  others.     Patient,  effective  industry  needs  con- 
tinually to  be  sustained  by  the  judicious  exercise  of  credit. 
The  best  encouragement  for  a  young  man  to  make  the  most 
of  himself  is  the  assurance  that  his  energy  and  fidelity  will 
be  a  ground  of  confidence  which  will  secure  to  him  all 
needed  means  for  the  employment  of  his  capacities.     By  the 
general  increase  of  both  enterprise  and  wealth,  the  whole 
community  derives  a  benefit  from  such  exercise  of  credit. 

Credit  is  then,  in  the  light  of  these  two  views,  indis- 
pensable both  to  the  drawing  out  of  the  entire  capital  of  a 
country,  and  also  to  the  most  effective  development  and 
exercise  of  the  industrial  talent  of  a  country.  These  we 
have  seen  to  be  the  two  elements  of  production  by  which 
wealth  is  increased.  Thus  the  free  exercise  of  credit  on  a 
sound  and  stable  basis,  touches  the  very  springs  of  indus- 
trial enterprise. 

3.  Credit  quickens  exchanges.      The   most   important 


316  EXCHANGE. 

functions  of  credit  pertain  to  the  sphere  of  Exchange.  In 
that  sphere,  first  in  order  comes  the  office  named.  Pro- 
duction must  generally  be  more  or  less  in  advance  of  the 
demand  for  commodities.  The  produce  of  the  farmer 
stored  in  his  granary,  and  the  products  of  the  manufac- 
turer waiting  for  purchasers,  are  so  much  capital  lying 
idle.  It  will  be  of  advantage  to  the  producer  to  make  this 
portion  of  his  capital  available  at  once.  By  selling  his 
products  for  the  note  of  a  responsible  buyer,  payable  at 
the  end  of  three  months,  he  is  able  to  do  this.  For,  this 
note  in  the  form  of  what  we  have  called  "  Mercantile 
Paper,"  can  be  used  immediately  as  the  basis  of  a  loan 
and  so  becomes  as  serviceable  as  if  the  goods  had  been 
sold  for  money.  The  first  sale  may  be  to  a  middle-man  or 
a  commission  merchant,  and  so  it  stands  at  the  beginning 
of  a  series  of  exchanges  through  which  the  goods  must 
pass  before  they  reach  the  consumer.  Each  sale  may  be 
facilitated  in  the  same  way  by  the  use  of  credit,  and  thus 
the  articles  are  brought  within  reach  of  the  public,  just 
when  and  where  they  are  needed,  and  the  capital  repre- 
sented by  their  value,  is  turned  over  by  each  party  with- 
out delay.  It  is,  as  we  have  seen,  only  one  capital,  but 
credit  keeps  it  moving  along  the  whole  line  of  exchanges 
in  repeated  service.  Without  this  facility,  there  must  be 
temporary  suspensions  of  industry,  and  long  pauses  in  ex- 
change. This  function  of  credit  has  very  much  to  do 
with  keeping  the  market  of  a  community  supplied  all  the 
time  with  things  needed. 

4.  Credit  serves  directly  as  an  Instrument  of  Exchange. 
The  simplest  phase  of  this  function  in  book-accounts  has 
been  already  noticed.  A  buys  of  B  on  credit,  and  B 
buys  of  A  on  credit.  At  the  year's  end,  the  books  on 
either  side  are  balanced,  by  the  payment  of  the  difference 
or  by  simply  carrying  it  over  to  begin  the  account  current 
for  the  next  year. 


THE   CLEARING    HOUSE.  31? 

The  same  thing  is  accomplished  on  a  larger  scale  by 
credit  in  the  form  of  Bank-deposits.  Suppose  a  commu- 
nity in  which  the  leading  business  men  make  their  deposits 
in  a  single  bank.  Then,  if  A  makes  a  purchase  of  B  worth 
a  hundred  dollars,  he  will  make  his  payment  by  a  check 
which  B  will  send  to  the  bank,  and  the  amount  will  be 
added  to  his  deposit  account.  The  check  simply  withdraws 
a  hundred  dollars  from  A's  to  be  added  to  B's  account  on 
the  books  of  the  bank.  B,  on  the  same  day,  and  in  the 
same  way,  may  make  a  payment  of  the  same  amount  to 
C  and  C  to  D  and  D  again  to  A.  Four  payments  have 
been  made  by  four  checks  passed  into  the  bank.  On  each 
of  four  accounts,  two  corresponding  entries  have  been 
made  ;  and  yet  at  the  close  of  the  day,  the  four  accounts 
stand  just  as  they  did  at  the  beginning.  For  these  trans- 
actions, not  a  dollar  has  been  drawn  out  of  the  bank  or 
even  counted  in  it.  Credit  has  been  the  sole  instrument 
of  exchange  employed.  All  the  business-men  in  the  com- 
munity are  using  it  in  a  greater  or  less  degree,  to  fulfill  the 
same  office. 

In  a  large  commercial  city  like  New  York,  through  a 
hundred  or  more  banks  and  exchange-brokers,  credit  is 
doing  the  same  thing  every  day,  for  fifty  thousand  people. 
There,  since  each  bank  receives  more  or  less  checks  on 
other  banks,  one  additional  agency  is  needed  to  adjust 
accounts  between  the  banks  themselves.  This  is  provided 
for  in  the  Clearing  House,  which  is  only  a  kind  of  central 
bank  of  deposits  for  the  banks.  Each  bank  keeps  a  de- 
posit of  money  at  the  Clearing  House.  At  a  certain  hour 
every  day,  messengers  present,  at  their  respective  desks, 
the  checks,  drafts  and  demands  received  by  the  several 
banks,  the  day  previous,  carefully  sorted.  By  a  system- 
atic arrangement,  the  exchange  of  checks  is  all  effected 
in  ten  minutes.  Thirty-five  minutes  more  are  allowed  for 
the  clerks  inside  to  make  their  entries,  report  and  prove 


318  EXCHANGE. 

their  work.  A  little  further  time  is  given  to  the  detection 
and  correction  of  errors,  and  ordinarily  the  entire  business 
of  the  morning  is  accomplished  in  one  hour.  If  the  de- 
posit of  any  bank  is  found  to  be  overdrawn,  notice  is  given 
at  once  and  the  deficiency  must  be  supplied  during  the 
banking-hours  of  that  day.  No  transfer  of  money  is 
required  except  to  make  up  these  deficiencies.  Transac- 
tions of  exchange  amounting  in  one  day  to  more  than  two 
hundred  million  dollars  have  thus  been  settled  in  the 
space  of  an  hour,  saving  mucli  of  both  labor  and  danger, 
involved  in  the  transfer  of  money  from  bank  to  bank. 

Credit  fulfills  a  like  office  in  adjusting  exchanges 
between  two  distant  cities.  It  is  to  be  borne  in  mind  that 
the  sales  and  purchases  of  every  community,  as  well  as  of 
every  individual  must  be  substantially  equal.  A  man  can 
buy  only  as  much  as  he  can  pay  for,  and  as  much  as  he 
can  pay  for,  he  will  generally  buy,  and  what  he  produces 
must  pay  for  what  he  buys.  So  it  is  between  two  cities, 
Chicago  and  New  York,  for  instance.  The  agricultural 
products  sent  from  Chicago  must  pay  for  the  goods 
brought  from  New  York.  The  chief  instrument  of  this 
exchange  is  credit.  Thus  produce-dealer  A  in  Chicago, 
ships  to  B,  his  consignee  in  New  York,  ten  car-loads  of 
wheat  whose  market-price,  at  the  sea-board,  is  five  thou- 
sand dollars.  When  the  wheat  is  delivered,  A  makes  a 
draft  on  B  for  the  five  thousand  dollars  and  deposits  it  to 
his  own  credit  in  his  bank  in  Chicago.  The  bank  for- 
wards the  draft  immediately  to  the  bank  in  New  York 
with  which  it  keeps  open  account,  and  the  same  day  sells 
to  C,  a  dry-goods  merchant  in  Chicago,  its  draft  for  five 
thousand  dollars  to  pay  for  goods  received  from  an  im- 
porter in  New  York.  Credit  in  the  form  of  bank-deposits 
has  thus  effected  an  exchange  between  these  distant  cities, 
of  wheat  for  dry-goods,  with  only  the  labor  of  writing  a 
letter  or  two,  and  making  a  few  ledger-entries.  We  have 


CREDIT  IN   FOREIGN  TliADE.  319 

taken  a  very  simple  transaction  out  of  a  thousand  ex- 
changes more  or  less  complicated,  yet  all  accomplished  by 
the  same  means,  every  day.  If  the  exchanges  between 
two  places  are  equal,  the  whole  business  between  them 
may  be  thus  adjusted  without  the  transfer  of  any  money. 

If,  however,  the  balance  of  trade  between  the  twoplaoes 
is  against  Chicago,  that  is,  if  the  value  of  the  goods  which 
Chicago  buys  of  New  York,  is  greater  than  that  of  the  pro- 
duce which  New  York  buys  of  Chicago,  the  difference 
must  be  made  up  in  some  other  way.  It  might  be  by 
sending  money.  But  perhaps  it  will  be  more  advantageous 
to  bring  accounts  with  another  city  into  the  negotiations. 
Thus,  if  the  balance  of  trade  between  New  York  and  New 
Orleans  is  in  favor  of  New  Orleans  and  the  balance  of 
trade  between  Chicago  and  New  Orleans  is  in  favor  of  Chi- 
cago, credit  may  still  fulfill  its  function  through  deposit 
accounts  in  New  Orleans.  The  Chicago  merchants  may 
pay  for  their  goods  from  New  York  in  part,  by  drafts  of 
the  Chicago  banks  on  the  New  Orleans  banks,  based 
on  wheat  or  other  products  sent  thither.  So  by  the  in- 
strumentality of  credit,  in  a  triple  exchange,  the  products 
of  the  western  prairies  may  be  made  to  pay  for  the  goods 
brought  from  New  York. 

The  case  is  essentially  the  same  between  the  chief  trad- 
ing cities  all  over  the  world.  The  foreign  trade  of  Boston 
is  mainly  an  account  current  with  all  the  cities  of  the 
•world  with  which  she  has  commerce.  Charges  on  one  side 
are  set  off  by  charges  on  the  other,  and  a  very  small 
amount  of  money  adjusts  the  final  balances.  The  value 
of  the  tea  which  Boston  imports  from  China  exceeds  that 
of  the  merchandise  she  sends  to  that  country.  But  she 
sends  to  the  British  West  Indies,  provisions  whose  value  as 
much  exceeds  that  of  the  goods  she  imports  from  those 
islands.  The  West  Indies  may  settle  their  debt  to  Boston 
by  bills  of  exchange  on  London,  and  these  in  turn  will 


320  EXCHANGE. 

pay  Boston's  debt  to  Chinat  In  reality,  the  flour  sent 
from  Boston  pays  for  the  sugar  sent  from  Jamaica  to  Liv- 
erpool, and  the  goods  sent  from  Liverpool  to  China  pay  for 
.the  tea  sent  from  China  to  Boston,  and  when  the  circle  is 
complete,  the  accounts  all  around  are  settled.  Credit  in 
the  form  of  bills  of  exchange  based  on  bank-deposits  is  the 
convenient  instrument  through  which  all  this  is  effected. 
This  manifest  advantage  to  all  concerned  is  greater  just  in 
proportion  as  communication  and  trade  between  all  parts 
of  the  world  are  made  more  free. 

5.  Credit,  to  a  limited  extent,  may  be  safely  put  into 
the  form  of  currency,  and  become  an  actual  substitute  for 
money.  The  whole  subject  of  currency  will  be  more  fully 
presented  in  another  connection.  Here,  we  only  state  this 
as  one  of  the  possible  useful  functions  of  credit.  It  is  a 
rule  of  sound  economy  to  use  always  the  cheapest  tools 
which  will  serve  well  the  purpose  contemplated.  If  a 
paper  currency,  in  the  form  of  promissory  notes  of  banks, 
to  an  amount  equal  to  double  the  specie  which  they  hold, 
will  effect  exchanges  well  and  safely,  the  real  value  of  half 
the  gold  and  silver  fixed  in  money  may  be  devoted  to  other 
purposes.  So  far  the  instrument  of  exchange  is  cheap- 
ened and  there  is  an  advantage  in  using  credit  for  a  por- 
tion of  the  currency.  We  recognize  the  fact  and  yet  the 
statement  must  be  qualified  by  a  caveat.  This  use  of 
credit  runs  always  close  upon  the  line  of  danger,  and  needs 
more  careful  restrictions  than  can  ordinarily  be  imposed 
or  maintained. 

It  is  to  be  observed  with  reference  to  all  these  functions 
of  credit,  that  a  basis  of  sound  money  is  indispensable. 
The  value  of  every  thing  in  whatever  way  it  may  be  ex- 
changed must  be  estimated  by  a  standard  universally  rec- 
ognized. We  have  seen  that  nothing  but  real  money  made 
of  gold  and  silver  can  furnish  the  universal  standard  of 


ABUSES   OF   CREDIT.  321 

value  required.  Real  money  is  the  ballast  of  the  ship  of 
trade.  Credit  furnishes  the  sails.  Any  ballast  that  easily 
shifts  in  a  storm  is  sure  to  bring  danger  to  the  ship. 
Hence,  the  more  fully  credit  is  employed  as  an  instrument 
of  exchange,  the  greater  the  necessity  that  money,  the 
standard  of  value,  be  as  invariable  as  possible.  Moreover, 
in  all  the  transactions  of  credit  to  which  we  have  referred, 
money  as  a  medium  of  exchange  mingles  more  or  less.  It 
must  be  good  money,  else  the  whole  system  of  credit  wavers 
with  uncertainty.  The  credit  which  circles  the  world  and 
binds  all  civilized  nations  together  by  the  common  inter- 
ests and  mutual  service  of  universal  commerce,  must  be 
sustained  by  the  all  pervading  presence  of  money  whose 
value  is  uniform  and  stable.  Quality  in  this  matter  is  of 
more  consequence  even  than  quantity.  The  nation  that 
robs  its  money  of  these  qualities  of  stability  and  uniform- 
ity with  that  of  the  rest  of  the  world,  rules  itself  out  of 
free  and  equal  commercial  relations  with  other  nations. 

The  Mischievous  Abuses  of  Credit. — We  must 
recognize  credit  as  an  indispensable  instrument  of  e£- 
change.  But,  like  every  other  good  thing,  it  may  be  per- 
verted and  abused  so  as  to  be  productive  of  vast  evil.  The 
illusory  nature  of  credit  as  it  springs  out  of  men's  hopes 
and  builds  on  prospective  rather  than  real  wealth,  keeps 
an  element  of  danger  always  in  close  connection  with  its 
legitimate  use.  It  is  important  therefore,  that  the  abuses 
as  well  as  the  uses  of  this  instrument  be  distinctly  appre- 
hended. 

1.  Credit  is  abused  ivhen  too  freely  granted.  Poor 
human  nature  is  weak  and  false.  Not  every  fair  prom- 
ise is  to  be  trusted.  Some  proof  of  character  may  fitly  be 
asked  of  those  who  solicit  our  confidence.  The  real  or 
probable  ability  of  the  party  trusted,  to  return  at  a  future 
day,  an  equivalent  for  values  immediately  transferred  must 
14* 


322  EXCHANGE. 

also  be  remembered.  But  some  in  their  eagerness  to  trade 
and  some  through  lack  of  judgment  or  nerve  to  make  the 
discrimination,  set  aside  these  rules  of  prudence.  Hence 
the  ledger  of  the  retail  merchant  shows  many  an  account 
never  settled  except  by  an  entry  on  the  debtor  side  of  the 
profit  and  loss  account.  Into  every  little  western  city,  a 
stranger  comes  occasionally  with  a  stock  of  goods  bought  on 
credit  in  New  York  which  are  rapidly  sold  off  at  very  low 
prices,  and  then  the  stranger  disappears  just  as  his  notes  to 
the  jobber  in  the  commercial  emporium  fall  due.  Men 
wonder  how  such  an  adventurer  obtained  credit.  Again 
and  again  have  bankers  occasion  to  mourn  over  their  too 
easy  allowance  of  over  drafts  to  men  who  turn  out  insolvent. 
Besides  the  immediate  losses  involved,  such  proceedings 
seriously  mar  the  course  of  regular  business  ;  the  honest 
merchant  is  robbed  of  his  trade  by  knavish  adventurers  and 
the  community  is  demoralized  ;  and  many  fear  to  give  credit 
to  those  who  really  deserve  it. 

2.  Credit  is  abused  by  the  wild  speculation  of  borrowers. 
One  may  do  what  he  will  with  his  own,  but  when  doing 
business  with  another's  capital,  he  is  bound  to  avoid  great 
risks.     Yet  too  often  we  see  the  borrowed  capital  recklessly 
thrown  out  upon  uncertain  ventures,  in  utter  disregard  of 
the  creditor's  claims.    Thus,  even  the  capital  of  banks,  not 
infrequently,  becomes  involved  in  the  gambling  operations 
of  the  stock-exchange. 

3.  Credit  is  abused  by  the  extravagant  living  of  debtors. 
A  young  merchant  who  has  stocked  his  store  with  goods 
principally  bought  on   credit,  has   need    to   husband   his 
gains  with  strictest  care  in  anticipation  of  the  pay-day  soon 
to   come.     Instead   of    this,    one   so    situated   sometimes 
adopts  a  lavish  style  of  living,  as  though  his  fortune  were 
already  made    when    his   store   is   opened  and  his   trade 
begins.     It  is  said  that  of  those  who  enter  the  mercantile 
profession,  ninety-nine  in  every  hundred  fail.     The  major- 


CONFIDENCE   OPERATIONS.  323 

ity  of  these  failures  arc  caused  by  rash  ventures  and  ex- 
travagant expenses. 

4.  Credit  is  abused  by  confidence  operations.  Under 
this  head  we  include  schemes  of  speculation  which  have 
only  credit  for  their  basis,  whether  organized  with  the  in- 
tention of  swindling  a  credulous  public,  or  projected  under 
a  temporary  illusion  by  which  all  concerned  are  misled. 
In  London,  a  few  years  ago,  with  great  parade  of  adver- 
tisements, prospectuses  and  posters,  the  "  Cooperative 
Credit  Bank"  was  opened  to  receive  deposits.  Eighteen 
per  cent  per  annum  payable  monthly  was  the  enticing  rate 
of  interest  offered.  Some  persons  of  eminence  were 
named  as  trustees.  To  matter  of  fact  inquirers,  the  single 
shrewd  manager  said  that  the  way  he  had  of  handling  the 
money  in  connection  with  "  the  Gilbert  &  Chaudiere  gold 
fields  "  enabled  him  to  realize  so  large  a  percentage.  All 
sorts  of  fish  came  into  the  net.  A  Church  of  England  rec- 
tor put  in  eleven  thousand  dollars  ;  a  ship-chandler  depos- 
ited five  hundred  that  it  might  be  in  a  safe  place  ;  a  hard- 
working man  witli  a  wife  and  five  children  sent  the  bank 
one  hundred  and  fifty  dollars,  being  fifteen  years'  saving 
out  of  his  scanty  pay  of  five  dollars  a  week,  and  so  on. 
During  the  two  years  of  the  bank's  existence,  the  balance- 
sheets  were  of  the  most  flattering  character  and  their  cor- 
rectness was  certified  by  a  firm  of  respectable  accountants 
who  took  the  managers  word  for  the  genuineness  of  bogus 
accounts.  When  the  bubble  burst,  instead  of  two  hundred 
thousand  dollars  which  ought  to  have  been  on  deposit,  the 
receiver  of  the  bank  found  the  sum  of  seventy-five  cents,  a 
sample  of  gold  dust  and  a  quantity  of  mining  shares. 

The  wild  speculations  in  western  lands  so  rife  in  our 
country  in  183G,  furnish  examples  of  the  other  kind  of 
operations.  Hundreds  of  ministers  and  other  good  people 
were  easily  drawn  to  invest  their  savings  in  a  scheme  pro- 
jected by  an  eminent  American  divine,  for  endowing  a 


324  EXCHANGE. 

college  in  Missouri  by  the  purchase  and  sale  of  western 
lands.  It  was  confidently  expected  that  the  money  ad- 
vanced would  prove  a  profitable  investment  for  each  of  the 
contributors,  and  at  the  same  time  provide  a  rich  endow- 
ment for  the  college.  Without  deception  or  fraud,  the 
scheme  failed  ;  the  money  paid  in  was  all  lost  and  further 
pledges  unfulfilled  involved  some  in  expensive  suits  at  law. 
The  sufferers  waked  from  their  fondly  cherished  dreams, 
wondered  at  their  own  delusion  and  learned  how  treacher- 
ous a  thing  is  credit  abused. 

5.  Credit  is  abused  by  the  over-estimate  of  assets,  some- 
times for  purposes  of  fraud,   sometimes   through  simple 
self-deception,  every  man  desiring  to  see  the  bright  rather 
than  the  dark  side  of  his  business  prospects.     A  Register  in 
Bankruptcy  recently  prepared  a  list  of  over  a  thousand 
assignments  made  within  two  years.     It  exhibits  enormous 
discrepancies  between  the  nominal  values  presented  and 
the  values  realized,  one  estimate  of  $300,000,  yielding  but 
$12,000,    another    of    $800,000,    shrinking    to    $24,000. 
This  difference  is  explained  in  part,  by  the  natural  effect  of 
sudden  and  forced  settlements  in  a  time  of  general  depres- 
sion, which  always  causes  a  shrinkage  of  assets  ;  but  evi- 
dently a  larger  part  is  due  to  fraud  or  delusion  in  the  esti- 
mates.    The  list  furnishes  also  significant  illustrations  of 
the  looseness  with  which  credit  is  granted  on  the  most 
slender  basis. 

6.  Credit  is  abused  by  the  betrayal  of  trusts.     This 
item  in  the  category  needs  only  to  be  mentioned.     It  is 
sadly  illustrated  by  recent  failures  of  Savings  Banks  and 
Insurance  companies,  and   the  sudden  collapse  of  fairest 
reputations.     Presidents  perjure  themselves,  swearing  to 
false  statements  ;  notes  of  stockholders  are  reckoned  as 
part  of  cash  capital  ;  collateral  securities  held  in  pledge  are 
used  as  the  basis  of  new  loans  ;  and  one  whose  character 
was  never  suspected,  borrows  money  at  will  on  stock-cer- 


MISCHIEFS   CAUSED   BY   CREDIT   ABUSED.  325 

tificates  raised  by  fraudulent  changes  of  figures,  to  pass  for 
tenfold  their  true  value. 

7.  The  most  sweeping  and  mischievous  abuse  of  credit 
appears  in  the  excessive  issue  of  Credit  Currency.  Of  this 
we  shall  speak  more  fully  hereafter.  We  do  but  name  it 
in  this  connection  as  a  most  subtle  and  dangerous  disturber 
of  all  the  processes  of  exchange. 

Some  of  the  mischiefs  caused  by  these  abuses  of  credit 
must  be  briefly  noticed. 

a.  From  this  cause  proceed  ruinous  fluctuations  of 
prices.  Mr.  Mill  says,  "  The  amount  of  purchasing  power 
which  a  person  can  exercise  is  composed  of  all  the  money  in 
his  possession  or  due  to  him,  and  of  all  his  credit,"  and 
again,  "  In  a  state  of  commerce  in  which  much  credit  is 
habitually  given,  general  prices  at  any  moment  depend 
much  more  upon  the  state  of  credit  than  upon  the  quan- 
tity of  money."  In  the  ordinary  course  of  business,  prices 
are  regulated  by  the  simple  ratio  of  demand  to  supply. 
Suppose  now,  a  far-seeing  merchant  anticipates  an  unusual 
demand  for  certain  commodities.  Desiring  to  secure  to 
himself  as  large  a  profit  as  possible  from  the  consequent 
rise  of  price,  he  begins  to  purchase  largely  beforehand. 
He  invests  first  his  ready  money,  then  all  he  can  collect 
that  is  due  to  him,  and  at  last  pushes  his  credit  to  the  ut- 
most. This  creates  an  uncommon  demand  at  once.  The 
market  feels  it  and  prices  begin  to  rise.  Others  begin  to 
have  large  expectations  and  follow  the  example.  Thus  a 
general  demand  is  created  which  sends  up  prices  rapidly, 
and  the  thing  expected  seems  to  be  realized.  The  move- 
ment is  not  confined  to  certain  articles,  for  the  spirit  of 
speculation  is  contagious.  Trade  becomes  active  in  all 
departments,  and  all,  desirous  to  get  a  share  of  the  golden 
harvest,  push  out  their  whole  purchasing  power  to  its 
extreme  limit.  Prices  rise  beyond  all  reasonable  grounds 


326  EXCHANGE. 

and  still  the  illusion  is  cherished.  But  at  last  the  spell  is 
broken.  Then  they  who  were  so  eager  to  buy  are  anxious 
only  to  sell.  In  the  rush  of  goods  into  the  market,  prices 
go  down  faster  than  they  went  up,  and  the  bubble  of  specu- 
lation bursts,  and  with  it,  in  the  case  of  not  a  few,  money, 
credit,  all  are  gone.  Something  like  this  might  happen, 
if  purchases  were  made  with  ready  money,  but  in  that  case, 
there  is  a  fixed  limit  to  the  fund  available  for  purchases. 
But  by  an  extension  of  credit,  men  draw  upon  an  ideal 
fund  which  is  unlimited.  From  such  fluctuations  even 
the  most  prudent  must  suffer  to  some  extent.  The  abuse 
of  credit  is  the  chief  originating  cause  of  commercial  crises, 
panics  and  revulsions. 

b.  The  losses  which  ensue  from  the  abuses  of  credit  en- 
hance the  risks  of  business,  and  for  those  risks  the  com- 
munity must  pay.     To  make  good  his  bad  debts,  the  retail 
merchant  must  get  a  larger  profit  out  of  his  paying  cus- 
tomers.    In  speculations  carried  on  by  credit,  the  apparent 
gain  of  one  involves  another's  loss,  and  the  aggregate  loss 
of  the  community  surpasses  all  the  gains  made. 

c.  These  abuses  of  credit  tend  to  turn  all  trade  into  a 
game  of  chance.     Here  and  there  a  splendid  prize  is  won. 
It  dazzles  the  eyes  of  men.     They  turn  from  the  patient 
toil  and  prudent  thrift,  which  are  the  conditions  of  a  slow 
but  sure  success,  hoping  by  some  bold  venture  to  jump  at 
once  into  a  fortune.     The  general  usage  makes  it  difficult 
for  those  who  would,  to  conduct  business  on  other  princi- 
ples. 

d.  Through  familiarity  with  failures  and  frauds,  the 
moral  sense  is  deadened  with  respect  to  a  debtor's  obligations. 
By  the  abuse  of  credit,  the  standard  of  honesty  is  lowered. 
Public  sentiment  becomes  tolerant  of  delinquencies,  eva- 
sions, downright  defalcations.     One  who  is  known  to  have 
enriched   himself   by   repeated  failures,  hardly  loses   his 
standing  in  society.     Hence,  a  scrupulous  conscience  with 


CREDIT  TO   BE  SACREDLY   GUARDED.  327 

respect  to  a  promise  to  pay,  is  pitied  rather  than  praised. 
It  is  deemed  of  little  importance  even  to  a  reputable  Chris- 
tian profession  ;  for  a  man  versed  in  the  ways  of  the 
world,  it  is  a  troublesome  appendage.  Why  then  should 
one  restrict  his  indulgences  in  order  to  pay  his  debts  and 
maintain  his  integrity  ? 

e.  The  abuse  of  credit  tends  to  relax  the  bands  of  law 
for  the  enforcement  of  contracts.  In  consequence  of  this 
abuse,  the  debtor  class  is  multiplied,  many  without  special 
fault  of  their  own  are  borne  on  by  the  general  tide,  till 
their  credit  is  extended  quite  beyond  their  ability  to  pay  ; 
delinquency  is  regarded  as  more  a  misfortune  than  a  fault, 
and  so  strong  are  sympathies  for  so-called  unfortunate 
debtors  that  the  collection  of  debts  by  legal  process  becomes 
difficult,  almost  impossible.  The  same  cause  leads  to  mis- 
chievous legislation  which  impairs  the  force  of  mortgages 
and  other  securities,  and  by  granting  large  exemptions, 
furnishes  the  means  of  gross  evasions  and  a  temptation 
to  fraud. 

The  remedy  for  these  manifold  evils  must  be  found 
chiefly  in  a  change  of  public  sentiment  and  common  prac- 
tice. While  we  are  writing,  it  comes  as  the  lesson  of  the 
hour,  emphasized  by  the  universal  depression  of  business 
and  consequent  extreme  distress  in  many  quarters,  that 
the  usages  of  trade  must  be  changed  so  as  to  lay  checks 
upon  the  unlimited  extension  of  credit  in  the  case  of  indi- 
viduals, of  corporations,  of  cities,  of  states.  It  is  of  far 
more  consequence  to  healthful  industry  and  trade  that 
Americans  return  to  the  wisdom  and  prudence  of  (e  the 
fathers,"  than  that  the  much  talked  of  "dollar  of  the 
fathers"  be  restored.  Commercial  credit,  like  woman's 
chastity,  needs  to  be  sacredly  guarded.  Its  brightness  and 
worth  are  marred  by  one  blot  of  dishonor.  The  fault  may 
be  condoned,  but  confidence  is  impaired  ;  the  wound  may 


328  EXCHANGE. 

be  healed,  but  the  scar  remains.  The  maxim  of  caution 
put  into  crude  verse  and  current  in  New  England,  a  hun- 
dred years  ago,  is  good  for  all  men,  for  all  countries,  for 
all  times  : 

Ever  thy  Credit  keep,  'tis  quickly  gone, 
Being  got  by  many  actions,  lost  by  one. 


CHAPTER  XXII. 

BANKS   AND   CURRENCY. 

THE  word  Bank  is  of  Italian  origin.  In  the  infancy  of 
European  commerce,  the  Jews  in  Italy  were  wont  to  as- 
semble in  the  market-places  of  the  principal  towns,  seated 
on  benches,  ready  to  lend  money ;  hence  the  term  bank 
from  banco,  a  bench.  When  any  of  these  money-lenders 
failed,  his  bench  was  broken,  and  so  we  have  the  word 
bankrupt. 

Banks  are  Agents  of  Credit. — We  have  already 
seen  how  extensive  and  important  are  the  functions  of 
credit  in  the  exchanges  of  the  world.  Its  complicated 
operations  require  special  attention  and  management. 
The  economical  principle  of  division  of  labor  demands 
that  some  persons  should  make  it  their  business  to  develop 
and  direct  this  part  of  the  machinery  of  exchange.  Banks 
are  institutions  devised  for  systematizing  credit,  and 
bankers  are  or  should  be  well  versed  in  the  operations  of 
credit. 

Three  distinct  Offices  of  Banks  are  to  be  recog- 
nized. 

1.  The  collection  and  custody  of  Money-deposits  to  be 
the  basis  of  credit  in  trade.  If  all  the  exchanges  of  a 
community  were  to  be  effected  by  money  alone,  every 
business-man  must  have  in  his  own  keeping  a  considerable 
amount  of  money.  To  keep  this  secure  from  robbery  and 
loss  would  involve  no  little  pains  and  expense.  Much 


330  EXCHAXGE. 

labor  would  also  be  required  to  count  the  specie  paid  and 
received,  and  the  cost  of  doing  business  would  thus  be  in- 
creased. Suppose  that,  instead  of  every  man's  doing  all 
this  for  himself,  the  business-men  agree  that  one  person 
shall  procure  a  safe  repository  for  all  the  specie  in  the 
neighborhood,  and  become  responsible  for  its  safe-keeping 
.and  transfer,  as  ordered.  This  would  provide  a  bank  and 
a  banker  for  the  community.  Then  as  each  deposits  what 
he  receives  and  draws  for  what  he  pays,  credit  is  made  to 
effect  exchanges  in  the  manner  heretofore  described,  and 
the  money  lies  for  the  most  part  secure  in  the  vaults  of  the 
banks.  From  this  simple  nucleus,  the  system  may  be  ex- 
tended so  as  to  combine  a  number  of  banks  in  a  large  city, 
the  banks  of  cities  in  different  parts  of  a  country  and  the 
banks  of  different  countries.  At  the  same  time  such  an 
institution  would  render  important  service  in  gathering 
up  a  great  deal  of  capital  which  would  otherwise  be  scat- 
tered and  useless  in  the  hands  of  persons  unable  to  em- 
ploy it,  and  making  it  available  for  the  office  next  to  be 
named. 

2.  The  second  office  of  banks  is  to  loan  and  discount 
both  money  and  credit.  We  have  seen  that  for  the  increase 
of  wealth,  labor  and  capital  must  be  combined.  But 
often,  one  man  has  the  capital  and  another  the  capacity  to 
labor.  It  is  the  office  of  the  bank  to  bring  the  two  ele- 
ments together  in  the  most  expeditious  and  convenient 
way.  He  who  has  the  capital,  may  put  it  into  the  bank 
to  be  loaned  for  him.  He  who  needs  the  capital  can  go 
directly  to  the  bank  and  borrow.  The  banker,  devoting 
himself  to  this  occupation  of  loaning,  becomes  expert  in 
such  negotiations,  keeps  himself  informed  as  to  the  char- 
acter and  responsibility  of  borrowers  and  understands  all 
the  legal  forms  necessary  to  a  valid  contract. 

The  terms  loan  and  discount  mean  essentially  the  same 
thing,  but  indicate  two  distinct  modes  of  lending  adopted 


THE   OFFICES   OF   BANKS.  331 

by  different  classes  of  banks.  Savings-banks  receive  on 
deposit  the  small  savings  of  great  numbers  of  people  of 
limited  means,  make  loans  generally  on  long  time,  secured 
by  real-estate  or  other  ample  sureties,  and  collect  the  in- 
terest semi-annually,  as  it  accrues.  Commercial-banks 
gather  funds  of  the  wealthy  as  their  capital  and  the  tem- 
porary deposits  of  men  in  active  business,  and  make  then- 
loans  for  short  time,  sixty  or  ninety  days,  on  personal 
security,  taking  interest  in  advance,  as  a  discount  or  de- 
duction from  the  principal  sum  borrowed.  Often  also,  the 
amount  thus  borrowed  is  simply  credited  to  the  account  of 
the  borrower,  to  be  drawn  on  as  other  deposits  are  by 
checks,  without  the  withdrawal  of  any  money  at  all.  It 
becomes  thus,  in  whole  or  in  part,  a  loan  of  credit  rather 
than  money. 

3.  The  third  office  of  banks  is  to  issue  promissory  notes 
for  general  circulation  as  substitutes  for  money.  This 
creates  a  paper  currency.  In  the  simplest  method  of 
doing  this,  the  bank  loans  not  the  specie  which  it  holds, 
but  its  own  notes  payable  in  specie,  receiving  in  return  the 
notes  of  individuals,  guaranteed  by  endorsers,  for  the 
amount  loaned,  to  be  paid  at  a  future  day.  From  this,  a 
two-fold  advantage  is  derived.  In  the  first  place,  these 
notes  become  a  medium  of  exchange  more  convenient  than 
specie,  because  lighter  and  more  easily  and  safely  carried 
about.  If  the  amount  of  notes  issued  is  just  equal  to  the 
amount  of  specie  in  the  vaults,  the  holders  would  always 
have  a  double  security,  viz.,  the  specie  in  the  bank  and 
the  obligations  of  those  to  whom  the  notes  were  loaned. 
The  law  often  makes  individual  stockholders  also  liable 
for  an  additional  amount  equal  to  that  of  their  stock.  Pa- 
per in  the  form  of  checks  of  individuals  on  a  bank  of  de- 
posit, might  be  made  to  circulate  to  some  extent  as  a 
substitute  for  money,  but  it  could  be  only  as  each  man's 
character  and  standing  were  known.  The  bank  is  a  public 


332  EXCHANGE. 

institution  in  which  all  have  confidence  and  hence  its  notes 
are  readily  accepted  by  all. 

The  other  advantage  is  that  paper,  a  substance  much 
cheaper  than  gold  and  silver,  may,  within  certain  limits, 
fulfill  all  the  functions  of  an  instrument  of  exchange,  and 
permit  a  portion  of  the  precious  metals  to  be  applied  to 
other  uses.  There  is  economy  in  thus  cheapening  the 
instruments  of  trade,  provided  the  restrictions  are  such 
that  their  fitness  for  the  required  service  is  not  impaired. 
The  bank-notes  may  safely  be  issued  in  excess  of  the  specie 
held  in  reserve ;  for  they  can  never  all  be  presented  at 
once,  and  the  notes  of  borrowers  falling  due  day  by  day, 
may  be  relied  on  to  provide  in  part  for  the  redemption  of 
the  notes  as  they  may  be  presented.  This  view  is  sound 
provided  the  safeguard  of  fixed  limits  to  the  amount  of 
notes  thrown  into  circulation  is  rigidly  maintained. 

Banks,  in  the  fulfillment  of  these  offices,  confer  another 
incidental  benefit,  especially  in  a  new  country.  As  public 
corporations  of  known  character,  they  offer  inducements 
for  the  introduction  of  foreign  capital.  In  a  young  and 
growing  country,  capital  is  scai'ce  and  at  the  same  time, 
more  productive  than  in  older  countries.  The  higher 
rate  of  intei-est  offered  is  a  strong  attraction  to  capital 
from  abroad,  and  banks  properly  established  provide  a 
safe  channel  through  which  it  may  come  in. 

Through  these  offices,  banks  have  also  rendered  very 
important  services  to  the  finances  of  sovereigns  and  states, 
steadying  and  strengthening  the  bands  of  government  and 
furnishing  efficient  aid  in  the  emergencies  of  war  and  of 
great  national  enterprises. 

A  few  facts  drawn  from  the  history  of  banks  will 
further  illustrate  their  nature  and  operations. 

The  Bank  of  Venice,  founded  A.  D.  1171,  was  the  ear- 
liest banking  institution  in  Europe.  It  was  based  upon  a 


BANKS   OF   VENICE,    GENOA    AND    AMSTERDAM.      333 

forced  loan  of  the  Republic.  The  reigning  duke,  in  order 
to  raise  means  for  carrying  on  a  crusade,  obliged  a  number 
of  the  most  opulent  citizens  to  advance  funds  to  a  "  Cham- 
ber of  Loans"  to  which  the  contributors  were  made  cred- 
itors, receiving  a  yearly  interest  of  four  per  cent.  The 
funds  so  deposited  could  not  be  withdrawn,  but  were  trans- 
ferable on  the  books,  at  the  pleasure  of  the  owner.  It 
provided  also  for  the  safe  custody  and  transfer  of  special 
deposits.  The  bank  credits,  in  form  like  modern  certifi- 
cates of  deposit,  were  at  a  premium  for  purposes  of  trade. 
This  bank  of  Venice  served  well  the  exigencies  of  the 
state,  and  was  of  great  advantage  to  its  wide-spread  com- 
merce. Its  operations,  thus  confined  to  the  regulation  of 
credit,  as  based  on  deposits,  were  maintained  in  full  vigor 
for  four  hundred  years,  and  its  existence  continued  till 
the  year  1797,  when  it  fell,  with  the  city  itself,  at  the  con- 
quest of  Italy  by  Napoleon. 

The  Bank  of  Genoa,  established  in  1407,  also  to  meet 
the  necessities  of  the  state,  was  the  first  to  issue  circulat- 
ing notes.  These,  however,  were  not  made  payable  to 
bearer,  but  passed  only  by  endorsement.  They  were 
probably  issued  only  for  large  amounts  and  employed  in 
large  transactions. 

The  Bank  of  Amsterdam,  established  in  1(509,  was  the 
first  instituted  expressly  to  promote  the  interests  of  com- 
merce. Its  primary  object  was  to  remedy  the  inconvenience 
arising  from  the  great  quantity  of  clipped  and  worn  coin 
in  circulation.  It  was  a  bank  of  deposit  only,  the  credit 
given  in  the  bank-book  for  coin  deposited  was  called  bank 
money.  The  regulations  of  the  country  directed  that  all 
bills  drawn  upon  or  negotiated  at  Amsterdam,  above  a 
certain  amount,  should  be  paid  in  bank-money.  This 
obliged  every  merchant  to  keep  an  account  at  the  bank, 
and  held  its  money  at  a  premium.  The  Bank  of  Ham- 
burg was  established  ten  years  later  on  the  same  plan. 


334  EXCHAXGE. 

Its  deposits  however,  were  in  the  form  of  bars  of  silver 
bullion.  Both  these  banks  professed  to  lend  out  no  part 
of  their  deposits.  But  the  guardians  of  the  bank  of 
Amsterdam  proved  at  last  unfaithful  to  their  trust  in  this 
respect  and  caused  its  ruin.  The  bank  of  Hamburg  con- 
tinues to  this  day,  commanding  the  highest  confidence  of 
the  commercial  world. 

The  Bank  of  England,  founded  in  1694,  was  the  first 
institution  that  was  authorized  to  issue  bank  bills  payable 
to  bearer  at  sight.  It  has  been  from  the  outset,  an  agent 
of  credit  for  both  the  finances  of  the  government  and  the 
service  of  commerce.  Its  entire  capital  now  amounting 
with  accumulated  profits  to  eighty-eight  million  dollars,  is 
permanently  loaned  to  the  government.  It  fulfills  all  of 
the  offices  we  have  named,  being  a  bank  of  deposit,  of  loan 
and  discount,  and  of  circulation.  It  can  issue  seventy 
million  dollars  of  notes,  (none  under  five  pounds,  or 
twenty-five  dollars)  against  that  amount  of  government 
securities  set  apart  for  the  purpose.  It  may  also  issue 
notes  beyond  this,  against  an  equal  amount  of  gold  and 
silver  held  in  reserve.  Its  notes  are  practically  a  legal  ten- 
der everywhere  in  the  kingdom  except  in  payments  by  the 
bank,  though  the  constitutionality  of  the  law  in  this 
respect  has  been  questioned.  No  note  returned  to  the 
bank  is  ever  re-issued.  The  bank  is  itself  a  private  corpo- 
ration, but  it  has  the  state  for  a  partner,  and  the  two 
stand  together  for  mutual  support.  It  acts  as  the  agent 
of  the  government  in  managing  the  national  debt.  Dur- 
ing the  long  Napoleonic  wars,  it  rendered  indispensable 
aid  to  the  government,  and  under  the  pressure  of  urgent 
necessity,  it  was  allowed  in  1797,  to  suspend  specie  pay- 
ment, and  the  suspension  continued  through  twenty-five 
vears.  In  England,  outside  of  London  and  its  vicinity, 
there  are  many  joint-stock  banks  which  also  issue  notes  of 
circulation.  But  the  bank  of  England  is  the  great  regu- 


THE   BANK   OF   FRANCE.  335 

lator  of  credit  in  all  forms.  It  is  the  most  powerful  of  all 
modern  banks  and  its  influence  affects  the  commerce  of  all 
nations. 

The  Scotch  banking-system  is  peculiar  in  its  method 
of  giving  what  are  called  cash-credits.  When  a  man 
wishes  a  cash  credit,  he  finds  a  bondsman,  who  promises 
to  indemnify  the  bank  for  all  that  it  may  lose,  by  loaning 
to  him  within  a  certain  sum  ;  or  else  he  places  real  estate 
in  the  power  of  the  bank,  to  a  sufficient  amount  to  render 
it  secure  within  the  sum  which  he  wishes  to  borrow.  The 
bank  then  opens  with  him  a  cash  account,  or  allows  him 
to  draw  for  any  sum  within  the  specified  amount.  He  is 
charged  interest  only  for  the  amount  which  he  borrows. 
As  fast  as  he  is  in  funds,  he  deposits  all  he  can  spare,  in 
the  bank,  and  for  everything  thus  deposited,  he  is  allowed 
interest ;  so  that  his  interest  on  deposits  always  diminishes 
the  interest  on  his  debt.  Thus  he  borrows  and  pays,  suc- 
cessively, and  at  stated  seasons,  the  accounts  are  adjusted. 
This  system  is  especially  favorable  to  men  of  small  means, 
and  furnishes  full  security  to  the  banks. 

The  Bank  of  France  is  like  that  of  England,  a  private 
corporation,  but  unlike  that  of  England,  it  does  not 
directly  manage  the  revenues  of  the  state;  but  by  lending 
freely  to  the  government,  it  has  borne  it  safely  through 
extraordinary  exigencies.  Founded  in  1800.  since  1803  it 
has  had  the  exclusive  privilege  in  Paris,  and  since  1857,  in 
France,  of  issuing  notes  payable  on  demand.  Its  notes 
are  a  legal  tender  in  payment  of  all  debts,  public  and 
private.  During  the  revolution  of  1848,  and  again  on  the 
breaking  out  of  the  war  with  Prussia  in  1870.  it  was  au- 
thorized to  suspend  specie  payments.  But  so  wisely  were  its 
affairs  managed  and  so  faithfully  did  the  government  keep 
its  promises,  that  notwithstanding  it  has  loaned  to  the 
government  since  1870,  six  hundred  million  dollars,  its 
notes  have,  except  for  a  brief  period,  remained  at  par  and 


336  EXCHANGE. 

now,  January,  1878.  it  is  resuming  specie  payment.  The 
secret  of  its  soundness  and  strength  is  the  policy  of  keep- 
ing large  reserves  of  coin  in  proportion  to  its  circulation. 

The  first  Bank  authorized  in  the  United  States,  origi- 
nated in  a  union  of  citizens  in  Philadelphia,  in  1780,  to 
supply  the  army  with  rations.  They  were  allowed  to  form 
a  bank  and  to  issue  notes  to  buy  the  articles  required.  In 
December,  1781,  this  bank  was  chartered  by  the  Congress 
of  the  Confederation,  under  the  name  of  the  Bank  of 
North  America,  with  a  capital  of  four  hundred  thousand 
dollars.  The  next  year,  a  charter  was  also  granted  to  the 
company  by  the  legislature  of  Pennsylvania.  It  still 
exists,  being  now  one  of  the  national  banks  of  our  coun- 
try. In  three  or  four  of  the  other  states,  banks  were  soon 
after  chartered  in  the  same  way. 

The  new  constitution  under  which  the  government 
was  organized  in  1789.  contains  the  clause  that  no  state 
shall  "coin  money,  emit  Mils  of  credit  or  make  anything 
but  gold  and  silver  coin  a  tender  in  payment  of  debts." 
This  clause  was  no  doubt,  designed  to  prohibit  the  issue  of 
a  paper  currency,  from  the  evils  of  which  the  country  had 
suffered  severely.  Under  it,  however,  two  questions  have 
been  raised.  First,  can  a  state  authorize  banks  to  do  what 
it  cannot  do  itself  ?  Second,  can  the  national  government 
do  what  the  states  cannot  do  in  respect  to  "  bills  of 
credit  ? "  Both  questions  have  been  answered  in  the 
affirmative.  Bank  notes  are  not  considered  "  bills  of 
credit"  in  the  sense  of  the  prohibition.  And  the  general 
government  has  been  justified  by  the  Supreme  Court  in 
making  its  notes,  the  greenbacks  of  to-day,  which  are 
simply  ''bills  of  credit,"  legal  tender.  Great  numbers  of 
State  banks  have  accordingly  been  authorized  and  two 
banks  of  the  United  States  have  been  chartered  by 
Congress  for  limited  periods.  All  of  these  banks  fulfilled 
the  three  offices  named,  under  various  regulations  such  as 


STATE  BANKS.  337 

different  legislatures  saw  fit  to  impose,  and  hence  were 
very  diverse  in  their  character  and  in  the  quality  of  the 
currency  issued  by  them. 

The  old  State  banks  were  created  by  special  charters  of 
incorporation  from  the  legislatures,  and  had  more  or  less 
the  character  of  monopolies.  Sometimes  the  banking  com- 
pany was  required  to  pay  a  bonus  to  the  state  for  its  pecu- 
liar privileges.  The  early  banking  of  New  England  in 
the  first  years  of  this  century  was  very  loose.  Each 
charter  named  the  amount  of  capital  stock  to  be  provided. 
But  in  many  cases,  subscribers  to  the  stock,  instead  of 
paying  in  cash,  simply  gave  their  notes  for  the  amount  of 
their  shares.  On  this  frail  basis,  a  bank  issued  circulating 
notes  freely,  sometimes  in  denominations  as  low  as  twenty- 
five  cents.  Such  a  currency  necessarily  drove  out  specie, 
till  but  little  was  left  in  the  region.  That  little  was 
moved  from  bank  to  bank  to  keep  up  a  show  for  the  visits 
of  inspectors.  In  due  time,  a  collapse  came.  One  bank 
in  Khode  Island,  founded  in  1804,  had  a  nominal  capital 
of  a  million  dollars.  Of  this,  less  than  twenty  thousand 
dollars  was  ever  paid  in.  The  directors,  soon  after  begin- 
ning business,  withdrew  what  they  had  paid  in,  leaving 
only  about  three  thousand  dollars.  This  was  afterwards 
absorbed  by  one  director,  who  bought  out  his  eleven  col- 
leagues, paying  them  with  bank  funds,  and  then  borrowed 
of  the  bank  over  seven  hundred  thousand  dollars.  When 
it  failed,  this  bank  had  in  specie  $86.46,  and  its  outstand- 
ing bills  were  estimated  at  nearly  $600,000.  Similar 
frauds  were  committed  in  Michigan  and  other  western 
states,  from  1833  to  1840,  with  like  mischievous  results. 
This  mode  of  doing  things  was  then  fitly  termed  "wild- 
cat banking." 

The  crash  in  New  England  led  to  the  passage  of  strict 
banking  laws  and  to  the  general  demand  for  higher  in- 
tegrity in  the  management  of  such  institutions.  Thus 
15 


338  EXCHANGE. 

many  of  the  state  banks  of  that  section  were  placed  on  a 
sound  basis  and  have  maintained  their  credit  unquestioned 
to  the  present  time. 

Various  measures  have  been  adopted  from  time  to 
time  for  the  purpose  of  keeping  bank  notes  good.  The 
Suffolk  bank  system  of  Massachusetts  required  each  coun- 
try bank  to  keep  a  certain  amount  of  specie  on  deposit 
with  the  Suffolk  bank  in  Boston  for  the  redemption  of  its 
notes,  and  bound  the  banks  together  for  mutual  support. 
The  Safety-Fund  act  of  New  York  required  each  bank  to 
put  into  the  hands  of  the  State  Treasurer  an  amount  of 
specie  equal  to  three  per  cent  of  its  capital  stock.  The 
safety-fund  thus  gathered  was  held  to  make  good  the  debts 
of  any  bank  that  might  become  insolvent.  This  made  it 
a  matter  of  common  interest  for  the  banks  to  watch  over 
and  sustain  each  other. 

The  Free  banking  system  was  introduced  in  New  York 
in  1838,  as  a  substitute  for  the  method  of  granting  special 
charters.  This  allowed  any  number  of  persons  to  form  a 
banking  association  on  meeting  certain  prescribed  condi- 
tions. Under  this  system,  the  redemption  of  bank-notes 
was  provided  for  by  the  deposit  with  a  bank-comptroller 
appointed  by  the  state,  of  stocks  of  states  and  of  corporations 
and  bonds  and  mortgages,  the  issue  of  each  bank  being 
limited  by  the  amount  of  securities  held  on  its  account. 
The  value  of  this  security  would  of  course  vary  with  the 
character  of  the  deposit.  This  system  was  adopted  quite 
generally  by  the  states  west  of  New  York  and  continued 
until  the  present  national  bank  system. 

Two  Banks  of  the  United  States  have  place  in  our 
nation's  history,  each  continued  for  a  period  of  twenty 
years.  The  first,  projected  by  Alexander  Hamilton,  was 
chartered  by  act  of  Congress  in  1791,  with  a  capital  of 
$10,000,000.  Its  charter  expired  in  1811,  and  was  not 
renewed.  The  second  was  chartered  in  1816,  with  a  capi- 


THE    NATIONAL   BANK   SYSTEM.  339 

till  of  $35,000,000.  A  bill  for  the  renewal  of  its  charter 
passed  both  houses  of  Congress,  but  was  vetoed  by  Presi- 
dent Jackson,  and  in  1836,  it  was  closed  as  a  government 
institution.  Each  of  these  banks  rendered  important  ser- 
vice in  the  management  of  the  national  finances  and  as  a 
bank  of  deposit,  discount  and  circulation,  helped  to  steady 
credit  and  to  promote  exchanges  in  all  parts  of  the  coun- 
try. In  the  discussions  concerning  the  re-charter  of  the 
'bank,  however,  it  plainly  appeared  what  a  political  power 
such  a  corporation  might  become.  The  bribery,  misman- 
agement and  bold  speculations  with  which  the  last  bank 
closed  its  career,  under  a  charter  from  the  state  of  Penn- 
sylvania, also  clearly  showed  that  such  an  institution 
might  work  mischief  on  a  scale  proportioned  to  its  great- 
ness. The  people  have  therefore  acquiesced  in  the  decree 
which  terminated  its  existence,  and  it  is  not  likely  that 
another  bank  of  the  United  States  will  soon,  if  ever  be  or- 
ganized. 

Under  the  system  of  state  banks,  frauds  and  failures 
were  frequent,  entailing  heavy  losses  on  the  holders  of 
bills,  and  much  distrust  in  business  circles.  Exchanges 
between  distant  parts  of  the  country  were  thus  embarrassed. 
For  many  years  the  premium  paid  in  Wisconsin  for  New 
York  money  or  drafts  was  from  three  to  five  per  cent,  add- 
ing so  much  to  the  prices  of  all  goods  brought  from  the 
East. 

The  existing  National  Bank  system  was  established  in 
1863,  by  act  of  Congress,  and  the  next  year  it  was  put 
under  the  charge  of  a  bureau  of  the  Treasury  Department, 
the  chief  officer  of  which  is  the  comptroller  of  the  cur- 
rency. Under  this  act.  a  national  bank  may  be  organized 
by  any  number  of  persons,  not  less  than  five,  the  capital 
in  any  instance,  to  be  not  less  than  $100,000, — except  that 
in  cities  containing  a  population  not  exceeding  six  thou- 


340  EXCHANGE. 

sand,  banks  may  be  established  with  a  capital  of  not  less 
than  $50,000.  The  capital  stock  in  cities  having  a  popu- 
lation of  fifty  thousand  must  be  not  less  than  $200,000. 
Not  less  than  one-third  of  the  capital  must  be  invested  in 
United  States  bonds,  upon  which  circulating  notes  may  be 
issued  equal  in  amount  to  ninety  per  cent  of  the  current 
market  value,  but  not  to  exceed  ninety  per  cent  of  the  par 
value  of  the  bonds  deposited.  The  notes  officially  certified 
are  receivable  at  par  in  the  United  States  in  all  payments 
to  and  from  the  government,  except  for  duties  on  imports, 
interest  on  the  public  debt  and  in  redemption  of  the 
treasury  notes.  They  are  redeemable  on  demand  in  lawful 
money  of  the  United  States, 

Soon  after  this  system  was  instituted,  an  act  of  Con- 
gress imposed  a  tax  of  ten  per  cent  on  the  notes  of  state 
banks  used  for  circulation  after  August  1,  1866.  This,  of 
course,  excluded  these  notes  from  further  circulation  and 
most  of  the  old  state  banks  reorganized  under  the  national 
system.  The  present  bank  currency  of  our  country, 
therefore,  consists  of  notes  of  national  banks  which  are  of 
uniform  value  in  all  parts  of  the  country  and  the  payment 
of  which  is  guaranteed  bv  the  United  States.  The  whole 

O  v 

amount  of  these  notes  which  could  be  thrown  into  circula- 
tion was  at  first  limited  to  $300,000,000  ;  subsequently  it 
was  raised  to  $354.000,000,  but  it  is  now  unlimited.  The 
amount  actually  in  circulation,  November  1,  was  nearly 
$317,000,000.  These  banks  receive  deposits,  sell  bills  of 
exchange  and  loan  money  at  the  rate  of  interest  allowed 
by  law  in  the  states  where  they  are  located.  For  the  cir- 
culating notes,  this  system  provides  all  the  security  which 
the  credit  of  the  United  States  can  give,  but  offers  none  for 
deposits  and  other  liabilities  except  that  all  shareholders 
are  held  individually  liable  to  the  extent  of  the  amount  of 
their  stock,  in  addition  to  the  amount  invested  therein. 
In  case  of  the  failure  of  a  national  bank,  a  receiver  may 
be  appointed  by  the  comptroller  to  wind  up  its  affairs. 


LIABILITIES  AND   RESOURCES  OF  BANKS.  341 

Private  Banking  houses  exist  in  all  parts  of  the  conn- 
try,  which  receive  deposits,  make  loans  and  negotiate  ex- 
change, but  issue  no  circulating  notes.  Some  of  these 
have  gained  a  character  and  standing  and  extent  of  busi- 
ness fully  equal  to  those  of  strong  banks.  Their  credit 
rests  upon  personal  integrity,  wise  management  and  large 
resources  accumulated  through  years  of  devoted  industry. 

Savings  Banks,  for  the  most  part,  without  capital,  sim- 
ply receive  and  loan  deposits.  It  was  estimated  in  Janu- 
ary, 1877,  that  the  savings  banks  of  our  country  held  de- 
posits amounting  to  one  thousand  million  dollars.  The 
entire  banking  business  of  the  country,  at  that  date  was 
represented  by  seven  hundred  million  of  capital  and  two 
thousand  million  of  deposits. 

The  Liabilities  and  Resources  of  Banks  under 
the  present  system,  set  down  in  distinct  statement,  will 
further  illustrate  the  principles  and  usages  of  these  insti- 
tutions. 

The  Liabilities  are  embraced  in  the  following  items  : 

1.  The  Capital  Stock,  which  is  the  amount  paid  in  as 
the  basis  of  business,  and  for  which  the  bank  is  responsi- 
ble to  the  several  shareholders. 

2.  The  Circulation,  which  consists  of  promissory  notes, 
signed  by  the  officers  of  the  bank,  payable  on  demand,  and 
circulating  in  the  community  as  substitutes  for  money. 

3.  Deposits,  which  includes  all  sums  standing  on  the 
books  of  the  bank  to  the  credit  of  individuals,  partnerships 
or  corporations,  that  are  payable  on  demand. 

4.  Balances  due  to  other  Banks.     This  is   a  form  of 
deposits  incidental  to  the  necessary  open  accounts  of  banks 
with  one  another,  but  they  deserve  a  distinct  notice  on 
account  of  a  peculiar  danger  which  attends  them.     Tho 
exigencies  of  business  require  that  the  small  interior  banks 
should  all  have  funds  deposited  with  leading  banks  in  the 


342  EXCHANGE. 

great  centres  of  commerce  to  draw  against.  The  banks 
of  the  great  cities  accumulate  liabilities  of  this  kind  to  a 
large  amount.  In  any  emergency,  these  deposits  are  lia- 
ble to  be  drawn  out  so  rapidly  as  to  bring  on  or  aggravate 
a  commercial  crisis. 

5.  Surplus  funds  or  Reserves,  held  to  strengthen  the 
bank    against     contingencies.     The    national    bank    act 
requires  each  bank  statedly  to  carry  a  portion  of  its  net 
profits  to  such  a  fund  until  it  amounts  to  twenty  per  cent 
of  the  capital.     The  reserve  is  really  an  addition  to  the 
capital,  and  belongs  to   the  stockholders,  enhancing  the 
market  value  of  the  stock.     Hence  it  is  properly  reckoned 
with  the  liabilities. 

6.  Undivided  Profits  and  unpaid  Dividends.     As  the 
business  of  a  bank  runs  on,  there  is  more  or  less  of  cur- 
rent profit  undisposed  of,  and  some  dividends  are  uncalled 
for.     For  all  these  the  bank  must  hold  itself  accountable. 

7.  Miscellaneous  liabilities  embracing  little  obligations 
of  various  kinds  not  classified. 

The  Resources  of  banks  may  be  distributed  in  the  fol- 
lowing classes  : 

1.  Loans.     This  item  includes  all  that  is  due  a  bank 
from  its  customers  for  discounts  and  advances  represented 
by  notes  or  other  obligations,  payable  from  day  to  day  as 
they  mature. 

2.  United  States  Bonds  deposited  with  the  comptroller 
of  the  currency  to  provide  for  the  ultimate  redemption  of 
the  bank-notes.     These  are  held  sacred  for  that  liability, 
but  have  a  value  more  than  sufficient  to  cover  it. 

3.  United  States  Bonds  and  other  stocks,  bonds,  etc., 
purchased  and  held  for  investments,  that  the  means  of  the 
bank  may  be  productive  and  at  the  same  time  more  readily 
available  than  they  would  be  if  loaned  to  individuals.     A 
portion  of  the  Eeserve  is  often  held  in  this  form. 


PROFITS  OP   BANKS.  343 

4.  Balances  due  from  other  Banks.     This  corresponds 
to  the  similar  item  on  the  other  side,  and  is  incidental  to 
the  open  accounts  between  banks. 

5.  Real  estate,  including  a  place  for  doing  business  and 
such  other  property  of  this  kind  as  may,  in  settlement  with 
its  debtors  or  otherwise,  come  into  the  possession  of  a  bank. 

6.  Exchanges  and  Cash  items,  embracing  checks,  sight- 
drafts  and  bills  of  exchange,  more  or  less  of  which  are  each 
day  found  with  a  bank  in  transitu. 

7.  National  bank  notes  and  Legal  tender  notes  held  to 
meet  daily  calls  for  currency. 

8.  Legal  tender  notes  and  specie,  held  for  the  home  re- 
demption of  circulating  notes. 

9.  Miscellaneous  Resources,  a  general  term  for  various 
assets  which  find  no  place  in  the  previous  classification. 
With  a  sound  bank,  the  amount  under  this  item  is  small. 

In  a  regular  bank  statement,  the  liabilities  and  re- 
sources thus  presented,  always  balance  each  other,  and  the 
items  on  either  side  show  the  actual  condition  of  the  bank. 

The  Sources  of  Profits  of  Banks. — 1.  The  chief 
profit  of  a  bank  comes  through  Interest  received.  Under 
the  national  system  several  distinct  sources  of  interest  may 
be  noticed. 

a.  Interest  on  United  States  bonds,  amounting  to  at 
least  one-third  of  the  capital,  deposited  with  the  comp- 
troller of  the  currency.     This  at  from  four  to  five  per  cent 
inures  to  the  benefit  of  the  bank,  unless  its  waning  credit 
compels  the  comptroller  to  retain  it  for  additional  security. 

b.  Interest  on  the  amount  of  circulating  notes  issued  in 
loans,  at  the  legal  rates.     This  is  so  much  added  to  inter- 
est on  the  bonds,  except  for  the  surplus  of  bonds  above  the 
amount  of  notes. 

c.  Interest  on  the  remaining  Capital,  loaned  to  cus- 
tomers or  held  in  productive  stocks. 


344  EXCHANGE. 

d.  Interest  on  a  portion  of  the  deposits  held.  Since 
generally  the  amount  of  deposits  brought  in  each  day  is 
about  equal  to  the  amount  withdrawn,  a  bank  may 
safely  loan  a  portion  of  its  average  deposits.  The  sum 
total  loaned  by  a  bank  is  thus  often  two  or  three  times 
the  amount  of  its  capital  stock.  Banks  are  strongly 
tempted  at  times  to  carry  this  loaning  of  deposits  beyond 
due  bounds  so  as  to  endanger  the  interests  of  both  depos- 
itors and  the  banks  themselves. 

2.  Premiums  on  Exchange.     A  small  percentage,  vary- 
ing with  the  state  of  the  market,  is  charged  for  drafts  or 
bills  of  exchange  on  banks  in  other  places.     The  aggregate 
of  these  premiums  is  considerable,  and  for  the  most  part 
is  clear  profit. 

3.  Commissions  for  Collections.     Banks,  as  institutions 
well  known  and  of  established  credit,  often  have  sent  to 
them  claims  to  be  collected.     As  agents  of  credit  in  this 
form,  banks  assume  no  risks,  but  charge  a  small  percent- 
age for  their  service. 

With  prudent  management,  the  profits  of  banks  are 
sure  and  compare  favorably  with  those  of  any  other  busi- 
ness. Of  late,  there  has  been  some  drawback  from  heavy 
taxation  of  these  institutions  by  both  the  state  and  the 
federal  government.  The  undue  expansion  of  loans  in 
order  to  increase  profits,  involves  the  danger  of  throwing 
the  centre  of  gravity  outside  the  base,  with  a  consequent 
downfall. 

Currency. — In  its  broadest  sense,  this  term  embraces 
whatever  in  the  usages  of  trade  passes  from  hand  to  hand 
as  a  medium  of  exchange.  Following  the  distinctions 
made  by  Mr.  Amasa  Walker,  we  may  specify  four  kinds  of 
currency. 

1.  Value  Currency.  This  consists  of  coined  money, 
made  of  the  precious  metals,  and  having  in  itself  a  uni- 


CURRENCY.  345 

versally  recognized  value  which  makes  it  always  accepted. 
It  needs  no  security  except  safeguards  against  counterfeit- 
ing and  debasement.  Respecting  this,  nothing  need  be 
added  to  what  has  been  already  said  in  treating  of  Money. 

2.  Mercantile  Currency.     This  is  a  term  adopted  by 
Mr.  Walker  to  signify  promises  payable  on  demand,  issued 
by  responsible  parties  for  the  payment  of  which  in  full, 
coined  money  or  bullion  of  equal  amount  is  held  in  trust 
by   the   promisors.     This   adds   to   the   security  of   hard 
money  the  convenience  of  paper  to  represent  real  values. 
Such  are  the  notes  of  the  bank  of  Hamburg,  and  such 
were  those  of  the  bank  of  Amsterdam,  in  its  best  estate. 
That  such  a  currency  is  both  practicable  and  very  service- 
able is  proved  by  actual  experience  in  the  past.     It  would 
need  no  restriction  upon  its  issue.     It  would  take  care  of 
its  own  reputation  and  would  always  be  a  satisfactory  ten- 
der in  payment  of  debts,  without  any  enactment  of  law  to 
that  effect.     It  would  also  furnish  ample  scope  for  profita- 
ble and  safe  banking.     It  may,  however,  be   questioned' 
whether  such  a  currency,  with  all  the  specie  that  could  be 
brought  into  use  by  its  side,  would  be  sufficient  for  the 
requisitions  of  modern  trade.     Since  credit  has  complica- 
ted itself  so  extensively  with  the  currency  of  all  the  lead- 
ing commercial  nations,  it  will  probably  be  impossible  now 
to  bring  the  commercial  world  back  to  the  adoption  of  this 
basis  exclusively.     To  attempt  some  approximation  to  it 
may  be  successful  so  far  as  to  yield  real  advantages. 

3.  Mixed  Currency.     This  is  formed  of  written  prom- 
ises to  pay  specie  on  demand,  issued  in  excess  of  the  actual 
amount  of  specie  held  by  the  promisors  for  their  redemp- 
tion.    It  is  called  mixed  because  its  basis  is  partly  coined 
money  of  real  value  at  hand,  and  partly  credit  in  the  form 
of  notes  discounted  by  the  banks  which  throw  it  into  cir- 
culation.    The  presumption  is  that  the  payment  of  cus- 
tomers' notes  as  they  mature,  will  keep  the  bank  provided 

15* 


346  EXCHANGE. 

with  whatever  additional  means  may  be  required  above 
the  specie  in  the  vaults,  to  meet  the  circulating  notes  as 
they  are  presented.  The  currency  of  the  old  state  banks 
of  our  country  was  wholly  of  this  character.  Its  security 
depended  on  the  proportions  of  the  specie  and  the  credit 
severally  to  the  amount  of  currency  issued.  In  some 
states,  these  proportions  were  regulated  by  law  so  as  to 
secure  general  soundness  of  this  currency.  In  the  so- 
called  "  wild-cat "  banking  before  described,  all  such  pre- 
cautions were  wanting,  and  the  results  could  only  be  dis- 
astrous. In  this  category  of  mixed  currency,  our  present 
national  bank  notes  must  also  be  placed.  They  are  pecu- 
liar only  in  this  respect,  that  the  credit  which  enters  into 
their  basis,  is  the  credit  of  the  nation,  and  its  strength  is 
supposed  to  be  such  that  only  a  small  proportion  of  specie 
will  need  to  be  kept  in  store,  even  when  specie  payments 
shall  be  generally  resumed. 

In  considering  this  kind  of  currency,  it  is  important  to 
note  the  distinction  between  its  ultimate  redemption  and 
its  im7nediate  convertibility.  Legitimate  banking  would 
always  show  a  large  margin  for  the  ultimate  redemption 
of  the  currency  ;  and  yet  this  might  be  with  very  insuffi- 
cient provision  for  its  immediate  convertibility.  This 
point  is  well  illustrated  by  Mr.  Walker 'in  some  statistics 
respecting  the  condition  of  the  state  banks  in  our  country 
on  the  first  of  January,  1860.  At  that  date  the  immediate 
liabilities  of  the  banks  of  the  United  States  were — 

Circulation $207,102,477 

Deposits 253,803.129 

Due  other  banks 55,932,918 

Other  liabilities 14,661,815 

— $531,499,339 
Immediate  resources  : 

Specie $a3,594,537 

Cash  items 19,331,521 

Notes  of  other  banks 25,502,567 

Due  by  other  banks 67,235.457 

—$195,664,082 

Excess  of  immediate  liabilities  over  immediate  resources $335,835,257 


MIXED   CURRENCY.  347 

It  is  evident  from  this  statement  that  a  special  run 
upon  the  banks  for  the  payment  of  circulating  notes  or  of 
deposits,  or  both,  (for  both  are  apt  to  move  together) 
would  reveal  their  inability  to  meet  their  obligations.  Yet, 
at  the  same  date,  the  banks  held  the  following  assets  aa 
ultimate  resources  : 

Loans $691,945,580 

Stocks 70,344,343 

Real   estate 30,782.131 

Other  investments 11,123,171 

Total $804,195,225 

Deducting  the  excess  of  immediate  liabilities  as 
above  335,835,257 

Surplus $468,359,968 

This  margin  seems  quite  sufficient  to  guarantee  per- 
fectly the  ultimate  redemption  of  the  currency.  The 
trouble  is  that  under  a  panic  the  banks  cannot  realize 
funds  from  their  assets,  fast  enough  to  meet  the  calls  for 
the  redemption  of  their  notes  and  deposits.  If  they  could 
do  so,  the  necessity  of  declining  to  renew  their  loans 
would  produce  a  commercial  crisis,  and  cause  a  general 
bankruptcy  of  men  in  business.  In  such  exigencies,  the 
only  relief  is  for  the  banks  to  suspend  specie  payments. 
This  is  a  measure  adopted  not  so  much  for  the  relief  of  the 
banks  themselves,  as  for  that  of  the  entire  community. 
The  banks  might  perhaps  save  themselves,  but  it  would 
be  at  the  expense  of  almost  certain  ruin  to  hundreds,  and 
of  immense  loss  to  all  engaged  in  trade.  The  effect 
of  a  suspension  is  really  to  gain  time  for  all  parties 
to  turn  assets,  curtail  credits  and  bring  the  operations  of 
business  on  to  a  sounder  b'asis.  It  is  always  an  evil  but 
often  a  necessary  evil  which  leads  to  wholesome  results. 
The  undue  expansion  of  credit  during  a  period  of  suspen- 
sion, is  an  abuse  which  can  only  aggravate  the  mischief. 

Our  national  bank  svstem  furnishes  no  certain  safe- 


348  EXCHANGE. 

guard  against  this  contingency.  Ordinarily,  the  govern- 
ment bonds  can  be  converted  into  cash  at  once,  and  so  far 
they  are  better  than  the  discounted  notes  of  individuals 
for  the  immediate  conversion  of  circulating  notes.  But  it 
is  easy  to  conceive  of  an  emergency  when  the  credit  of  the 
government  might  be  impaired  or  subjected  to  a  special 
strain,  so  that  the  market  would  be  glutted  with  bonds. 
Coincident  with  this,  a  run  on  the  banks  for  the  payment 
of  deposits  would  be  likely  to  take  place  and  the  immediate 
redemption  of  circulating  notes  would  be  quite  impossible. 

The  mixed  currency  of  England  is  in  some  degree 
guarded  with  respect  to  this  liability  by  precautionary 
measures  of  the  Bank  of  England.  Its  officers  have  an 
eye  continually  on  the  flow  of  specie.  As  soon  as  it  ap- 
pears that  the  stock  of  specie  in  the  country  is  diminishing, 
the  bank  raises  its  rate  of  interest.  This  tends  to  reduce 
the  discounts  and  is  a  signal  to  all  of  danger  and  a  call  to 
curtail  credits.  As  a  consequence,  the  bank  of  England 
and  all  other  banks  of  circulation  fortify  themselves  by 
adding  to  the  amount  of  their  specie  reserves.  Thus,  often 
by  timely  precaution,  the  danger  is  averted.  When  on 
the  other  hand,  the  amount  of  specie  seems  superfluous, 
the  opposite  course  is  taken  ;  the  rate  of  interest  is  reduced 
and  through  increased  loans,  the  funds  go  into  circulation. 
The  central  banking  institution  serves  as  a  great  balance- 
wheel  to  regulate  within  certain  limits  both  the  currency 
and  credit  in  trade. 

4.  Credit  Currency.  This  consists  of  engraved  notes 
bearing  promises  of  a  government  to  pay  specified  sums  of 
money,  at  a  distant  or  indefinite  period  in  the  future. 
These  by  force  of  law  or  peculiar  circumstances,  are  ac- 
cepted as  money  and  fulfill  its  functions.  The  "  Conti- 
nental money  "  of  revolutionary  times,  the  French  "  As- 
signats"  of  1790,  and  the  United  States  treasury  notes, 
now  in  circulation,  known  as  "greenbacks,"  are  examples 


CREDIT   CURRENCY.  349 

of  this  kind  of  curroncy.  It  has  no  basis  but  the  credit  of 
the  nation.  It  is  but  a  symbol  of  value,  and  has  purchasing 
power  only  as  men  have  faith  in  the  promise.  If  the 
course  of  the  government  is  such  as  to  impair  that  faith, 
the  purchasing  power  of  these  symbols  declines,  until  at 
last  it  utterly  fails,  as  was  the  case  with  the  American  con- 
tinental currency  and  the  French  assignats. 

On  the  face  of  the  "greenback"  before  us  we  read 
"  The  United  States  will  pay  the  bearer  ten  dollars." 
The  seal  of  the  United  States  treasury  and  the  signa- 
tures of  the  Treasurer  and  of  the  Register  of  the  treasury 
certify  the  genuineness  of  the  promise  and  bind  the  gov- 
ernment to  its  fulfillment.  On  its  back  we  read,  "  This 
note  is  a  legal  tender  at  its  par  value  for  all  debts  public 
and  private,  except  duties  on  imports  and  interest  on  the 
public  debt."  This  engraved  slip  of  paper  is  then  simply 
an  evidence  of  debt.  As  it  circulates  from  hand  to  hand, 
it  can  only  transfer  debts  ;  it  cannot  pay  them.  You  may 
offer  this  note  to  your  butcher  in  payment  of  his  bill.  He 
is  obliged  to  accept  it,  but  by  the  transfer,  the  government 
just  takes  your  place  as  his  debtor.  It  is  not  itself,  as  a 
gold  eagle  would  be,  a  '•'  quid  pro  quo"  for  the  meat  he 
has  furnished  you.  When  passed  back  to  the  government 
for  taxes  or  other  public  dues,  it  is  a  mere  counter  for 
canceling  reciprocal  obligations.  Its  only  support,  as  it 
flies  hither  and  thither,  is  that  word  "  dollars "  which 
means  real  value — a  certain  weight  of  gold  or  silver — 
which,  some  day,  it  will  bring  to  its  bearer.  Withdraw 
that  word  or  nullify  its  meaning  by  a  hint  or  a  suspicion 
that  the  government  never  means  to  redeem  the  promise, 
and  it  will  drop  at  once,  like  a  dead  leaf  to  the  ground, 
speedily  to  decay.  Yet,  men  talk  as  if  a  nation's  trade 
could  be  carried  on  with  a  currency  made  of  these  govern- 
ment promises,  forever  irredeemable. 

A  credit  currency  can  circulate  only  in  the  country 


350  EXCHANGE. 

where  it  is  issued.  There  it  inevitably  supplants  gold  and 
silver  which  are  sent  abroad  to  adjust  exchanges  with 
other  countries.  If,  as  is  sure  to  be  the  case,  these  notes 
are  issued  to  an  amount  exceeding  the  natural  demands  of 
trade  for  a  medium  of  exchange,  their  value  will  be  depre- 
ciated, and  specie,  as  compared  with  them,  will  bear  a 
premium.  That  premium  will  rise  or  fall  as  men's  confi- 
dence in  the  ability  or  policy  of  the  government  varies,  and 
its  amount  indicates  the  extent  to  which  the  currency  is 
depreciated.  It  is  not  the  value  of  gold  which  changes, 
but  that  of  currency  only.  In  such  circumstances,  no 
direct  legislation  can  prevent  or  fix  the  premium  on  gold, 
nor  change  it  except  for  the  worse.  The  force  of  civil  law 
is  as  powerless  to  resist  the  operation  of  the  laws  of  value, 
as  was  the  voice  of  the  old  Danish  king  in  England  to  stay 
the  inflowing  ocean-tide. 

A  credit  currency  tends  to  raise  the  prices  of  all  com- 
modities, and  to  keep  prices  fluctuating.  The  paper  sym- 
bol comes  necessarily  into  comparison  with  values  of  every 
kind.  It  has  in  itself  no  natural  basis  of  value.  It  rests 
on  credit  only,  not  at  all  on  its  cost.  Its  acceptability  de- 
pends mainly  on  the  hopes,  wishes  and  anticipations  of 
men.  In  a  time  of  general  confidence,  the  government  is 
led  to  over-issue  its  promises.  The  effect  is  at  once  to  en- 
hance prices  ;  and  the  first  consequence  of  this  is  that 
trade  is  unnaturally  stimulated  and  demands  a  yet  larger 
issue  of  currency,  until  the  day  of  reaction  and  distrust 
comes.  In  the  actual  experience  of  nations  as  recorded  in 
history,  it  appears  that  no  government,  once  drawn  into 
the  issue  of  a  credit  currency,  has  been  able  to  adhere  to 
its  purpose,  often  taking  the  form  of  a  distinct  promise,  to 
limit  the  issue  to  a  certain  amount.  The  door  once  open 
is  not  easily  shut — the  power  released  is  not  easily  curbed 
again.  Mr.  Walker  says  with  truth,  '•'  When  the  Secre- 
tary of  the  United  States  Treasury  endeavored  to  "float" 


CREDIT  CURRENCY.  351 

his  bonds  by  the  issue  of  credit  currency,  he  unfortunately 
floated  all  the  merchandise  of  the  country  at  the  same 
time,  so  that  the  rise  of  prices  compelled  him  to  pay 
double  for  all  the  government  needed  ;  and  hence  he  lost 
at  least  one-half  of  all  the  bonds  that  were  thus  sold."  At 
the  same  time,  it  produced  a  mischievous  disturbance  in 
all  commercial  transactions,  essentially  changing  the  force 
of  existing  contracts  and  reducing  the  value  of  fixed 
incomes. 

Through  this  enhancement  of  prices,  a  credit  currency 
lays  a  direct  tax  on  a  people,  which  is  measured  by  the 
degree  in  which  the  currency  is  depreciated.  If  a  ten 
dollar  treasury  note  will  buy  only  eight  dollars  worth  of 
merchandise,  at  the  gold  prices,  he  who  uses  the  note 
really  pays  a  tax  of  two  dollars  in  making  that  purchase. 
The  government  laid  this  tax,  though  it  gets  no  benefit 
from  it,  except  through  the  extension  of  its  credit.  If 
Buch  a  currency  is  never  redeemed,  the  country  is  taxed  for 
its  whole  amount,  but  the  tax  is  very  unequally  distrib- 
uted. If  it  is  finally  paid,  the  sum  total  is  greatly  increased 
through  the  enhanced  prices  paid  by  tbe  government  for 
things  needed  in  the  hour  of  its  extremity.  For  that 
final  payment,  some  contraction  of  currency  is  inevitable, 
and  while  it  is  going  on,  business  has  to  be  done  on  a 
''falling  market,"  that  is,  with  prices  declining.  This 
makes  men  groan  and  murmur  ;  they  forget  that  they  are 
only  paying  the  cost  of  their  cherished  illusion — the  appar- 
ent prosperity  of  the  day  when  the  inflation  of  the  cur- 
rency gave  them  what  they  deemed  the  benefit  of  "a  ris- 
ing market." 

A  Credit  currency  is  a  forced  Loan.  This  appears 
from  the  manner  in  which  it  is  issued.  Note  for  example 
the  course  of  our  government  in  issuing  its  treasury  notes. 
It  was  in  immediate  need  of  provisions  and  munitions  of 
war.  Instead  of  raising  means  for  this  exigency  by  taxes 


352  EXCHANGE. 

or  the  sale  of  bonds,  only,  it  contracted  with  manufactur- 
ers and  producers  for  the  articles  needed  and  gave  in  pay- 
ment these  promises.  In  other  words  it  borrowed  the 
ships,  guns,  ammunition,  provisions,  etc.,  in  the  first  in- 
stance of  those  who  produced  them,  and  then  to  relieve 
them  from  carrying  the  whole  burden  of  this  loan,  by  the 
legal  tender  act,  it  obliged  everybody  to  share  it.  All 
were  compelled  to  accept  greenbacks  for  whatever  might 
be  due  them,  and  so  every  bearer  of  a  greenback  is  made 
for  the  time  a  creditor  of  the  government. 

A  credit  currency  thus  involves  a  violation  of  the 
laws  of  value  and  an  inevitable  disturbance  of  the  com- 
merce and  industries  of  a  nation.  It  has  also  a  demoraliz- 
ing effect  on  the  honor  and  integrity  of  a  people.  The 
longer  they  are  kept  familiar  with  it,  the  more  is  the  tone 
of  moral  sentiment  among  them  corrupted.  Austria  pre- 
sents a  sad  example  in  point.  We  give  the  sketch  as 
drawn  by  a  trustworthy  historian  for  the  state  of  things 
in  1816.  Though  that  state  is  in  a  better  condition  now, 
her  moral  and  commercial  character  still  suffers  from  the 
same  malady.  Thus  we  read  : 

"  Undeniably  the  paper  money  exercised  the  worst  in- 
fluence on  the  morale  of  the  people.  Frugality  and  dili- 
gence were  lost  virtues.  Vulgar  pleasure-seeking  and 
wild  extravagance  became  habitual  even  in  the  lowest 
classes.  Of  what  use  to  care  for  the  future  ?  Why  not 
enjoy  to-day  all  the  pleasures  of  the  senses  ?  How  could 
any  one  hesitate  to  pay  two  hundred  gulden  for  admission 
to  a  ball  ?  In  fact,  the  "money"  had  no  value,  and  if 
one  stood  reflecting,  he  might  lose  ball  and  money  both. 
The  very  fact  of  speaking  continually  of  large  sums,  which 
however  in  truth  amounted  to  but  very  small  value,  stim- 
ulated to  frivolity  and  folly.  So  the  ground  was  prepared 
for  developing  the  celebrated  '  Viennese '  disposition  ;  and 
the  loafer-life  in  which  the  hot-spiced  pleasures  of  the 


CREDIT  CURRENCY.  353 

palate  seemed  the  highest  good,  became  indigenous  to  the 
unique  city  of  the  emperor." 

No  thoughtful  observer  can  fail  to  observe  similar  ten- 
dencies growing  steadily  stronger  in  our  country,  as  our 
credit  currency  continues  its  presence  and  influence  in  the 
land.  The  act  of  a  government  creating  such  a  currency 
is  a  direct  interference  with  the  rights  of  property  and 
with  the  fundamental  law  of  exchange,  which  requires  the 
free  consent  of  parties  to  all  transfers,  and  the  mainte- 
nance of  contracts  in  full  force.  That  act  can  be  justified 
only  by  stern  necessities,  in  circumstances  which  jeopard 
the  nation's  existence.  When  the  crisis  is  safely  passed, 
the  nation  is  under  the  highest  conceivable  obligation  to 
bend  all  its  energies  to  fulfill  its  promises,  to  relieve  the 
general  disturbance  and  distress,  and  to  restore  the  bright- 
ness of  its  commercial  honor,  as  speedily  as  possible. 


CHAPTER    XXIII. 

FREE-TRADE   vs.  PROTECTION. 

Definitions.  As  a  term  of  Political  Economy, 
Free-trade  expresses  the  principle  that  a  nation's  wealth 
and  prosperity  are  best  promoted  by  securing  the  utmost 
freedom  for  the  exchange  of  all  commodities  among  its  own 
people,  and  with  the  people  of  other  countries. 

As  a  term  of  the  same  science,  Protection  expresses 
the  principle  that  in  order  to  promote  home-industry,  the 
importation  of  certain  articles  from  countries  where  they 
can  be  produced  cheaper  than  at  home,  should  be  prohibited 
or  restricted  by  heavy  duties. 

From  the  bare  statement  of  these  principles,  it  is  evi- 
dent that  they  are  opposed  to  each  other,  propounding 
two  distinct  and  conflicting  economic  systems.  We  have 
accordingly  two  schools  of  political  economy  in  which  the 
expounders  of  the  science  are  classed  as  they  advocate  the 
one  or  the  other  of  these  principles.  In  practical  legis- 
lation, also,  two  opposing  policies  corresponding  to  these 
two  principles  have  been  in  conflict  through  all  the  history 
of  our  country.  The  issue  may  be  best  considered  with 
the  two  principles  distinctly  before  us. 

It  is  obvious  also  that  the  system  of  protection  touches 
all  of  the  four  branches  of  political  economy.  As  propos- 
ing measures  to  stimulate  home  industry,  it  is  directly 
concerned  with  the  department  of  Production.  As  it 
aims  to  enhance  the  prices  of  certain  commodities,  it  as 
directly  affects  Consumption.  As  it  modifies  both  private 
profits  and  public  taxation,  it  comes  into  contact  with  the 


THE  PRESUMPTION  IN  FAVOR  OF  FREE  TRADE.    355 

laws  of  Distribution.  And  as  it  obstructs  to  some  extent 
the  freedom  of  commerce,  it  has  to  do  especially  with  Ex- 
change. Such  being  the  case,  an  advantage  conferred  by 
the  system  in  one  direction,  may  be  offset  by  a  disadvan- 
tage produced  elsewhere.  Hence,  for  the  intelligent  dis- 
cussion of  the  question  before  us,  the  elementary  princi- 
ples of  our  science  in  all  of  its  departments  must  be  kept 
in  view.  We  have  therefore  chosen  this  place  for  the 
treatment  of  this  subject,  after  the  presentation  of  the 
elements  of  our  science  under  its  several  divisions. 

The  Presumption  is  in  favor  of  Free-trade. 

This  appears  from  several  considerations. 

1.  For  all  economic  processes  and  results,  in  their  gen- 
eral aspect,  the  law  of  freedom  is  most  favorable.  This 
fact  has  come  distinctly  to  view  through  all  our  previous 
discussions.  Thus  we  have  seen  that  for  the  production 
of  wealth,  labor  and  capital  meet  most  advantageously 
when  each  is  free  to  apply  itself  to  whatever  industry 
promises  the  largest  returns.  Economy  in  the  consump- 
tion of  wealth  demands  that  all  be  free  to  purchase  the 
means  of  gratifying  their  desires  at  the  least  expenditure 
of  value  practicable.  The  individual  needs  to  buy  where 
he  can  get  the  most  for  his  money.  It  is  equally  for  the 
interest  of  the  community  to  bring  its  supplies  from  the 
cheapest  market.  AVe  have  seen  too,  that/m?  competition 
is  the  grand  regulator  in  distributing  the  proceeds  of  in- 
dustry to  the  parties  concerned,  so  that  the  labor,  the 
skill,  the  capital  and  the  managing  capacity  shall  each 
receive  its  due  share.  It  has  further  been  made  plain  that 
the  ultimate  disposal  of  products,  through  the  processes  of 
exchange  is  most  profitable  with  the  widest  range  of  market, 
the  freest  channels  of  communication  and  the  best  facilities 
for  transportation.  The  interests  of  these  several  depart- 
ments of  economic  action  are  linked  together  and  in  the 


356  EXCHANGE. 

first  aspect,  the  rule  of  freedom  appears  essential  to  the 
prosperity  of  all. 

2.  The  right  of  Property  implies  freedom  for  every  one 
to  do  what  he  will  with  his  own,  provided  he  does  not  in- 
fringe the  rights  of  others.     Any  law  restricting  the  free 
exchange  of  one  form  of  property  for  any  other,  or  its  free 
transfer  from  one  place  to  any  other  is  '•' prima  facie"  a 
violation  of  a  natural,  universal,  inherent  right.  Every  man 
is  entitled  to  use  the  products  of  his  own  labor  as  may 
seem  most  for  his  advantage,  to  exchange  them  with  citi- 
zens of  his  own  country  or  with  foreigners,  as  he  may  get 
for  them   the  largest  compensation.     The  denial  of   this 
right  or  the  interference  with  it  by  a  government,  bears  a 
Bemblance,   to  say   the  least,  of  oppression,  of  robbery. 
The  presumption  is  against  it. 

3.  The   Social  Instincts  of  men  prompt  them   to  the 
practical  adoption  of  this  principle  of  freedom  of  exchange. 
A  solitary  settler  in  the  wilderness  reduces  his  wants  to 
the  minimum,  and  turns  his  hand  to  all  sorts  of  occupa- 
tions to  satisfy  them,  making  himself  hunter,  fisherman, 
farmer,  builder,  blacksmith,  and  so  on.      When  another 
joins  him,  a  division  of  labor  and  free  exchange  begin. 
As  numbers  increase  and  a  community  is  formed,  diverse 
employments  are  more  and  more  distinctly   defined  and 
distributed,  mutual  exchanges   are   multiplied,  and  both 
wants  and  the  means  of  gratifying  them  rapidly  increase. 
An  impulse  of  our  nature  leads  to  the  opening  of  com- 
munication with  other  settlements,  and  to  the  making  of 
that  communication  as  free  as  possible.     Thus  one  after 
another,  physical  obstructions  are  removed,  the  winding 
trail  gives  place  to  an  open  road,  bridges  are  thrown  across 
the  streams,   steam   supersedes  sails  for   navigation,  the 
locomotive  and  rail-car  are  brought  in  to  shorten  distance 
as  measured  by  time,  and  the  electric  telegraph,  set  up  be- 
tween different  and  distant  localities,  annihilates  time  and 


THE   PRESUMPTION   IN"   FAVOR   0?   FREE   TRADE.        357 

space  and  permits  contracts  and  all  operations  of  the  com- 
merce of  the  world  to  be  adjusted  to  present  facts  in  all 
parts  of  the  world.  Every  new  discovery  or  invention 
which  tends  to  increase  freedom  and  facilities  for  ex- 
changes is  hailed  with  joy  by  all  civilized  people.  The 
common  sense  of  men,  expressed  by  their  instinctive 
action,  thus  pronounces  universal  freedom  of  trade  a  com- 
mon blessing.  The  civilization  of  the  world  seems  to  ad- 
vance in  accord  with  this  principle.  Hence,  the  presump- 
tion that  it  is  a  wise  and  right  principle. 

4.  Free  commercial  intercourse  between  the  nations  of 
the  earth  tends  evidently  to  establish  their  mutual  relations 
if  pan  a  basis  of  peace  and  good-will.  By  the  mutual  ex- 
change of  values,  different  peoples  become  acquainted  and 
assimilated  with  each  other,  and  the  feeling  of  interdepend- 
ence creates  a  common  interest  out  of  which  grow  the 
bonds  of  abiding  friendship.  Within  the  last  two  hun- 
dred years,  international  law  has  come  to  the  dignity  of  a 
distinct  science.  Its  development  and  growth  have  been 
coincident  with  the  expansion  of  commerce  under  the  im- 
proved facilities  secured  by  recent  inventions.  The  spon- 
taneous and  necessary  intercourse  of  nations  originates  in- 
ternational law.  and  leads  to  the  establishing  of  rules  for 
governing  that  intercourse.  The  more  the  principles  and 
rules  of  this  department  of  law  are  studied,  the  more 
clearly  does  it  appear  that  through  free  commercial  rela- 
tions, the  separate  interests  of  all  nations  are  bound  to- 
gether in  one,  so  that  each  is  concerned  in  the  welfare  of 
every  other,  and  each  is  induced  to  place  itself  in  an  atti- 
tude of  friendship,  rather  than  of  enmity  towards  others. 
Free-trade  appears  thus  the  promoter  and  pledge  of  peace 
in  the  world.  The  broad  competition  which  it  incites 
tends  to  swell  the  sum  of  human  comforts  and  joys,  and  to 
impel  every  branch  of  the  race  to  improve  to  the  utmost 
the  conditions  of  human  living. 


358  EXCHANGE. 

5.  TJie  nations  of  men  are  of  one  Hood  and  constitute 
one  family  ;  and  all  the  face  of  the  earth  with  its  great 
diversity  of  resources  and  productions  is  given  to  the  one 
human  race.  The  blessings  which  the  earth  has  to  yield 
are  developed  in  largest  measure,  as  the  people  of  every 
land  devote  themselves  to  the  production  of  those  forms  of 
wealth  for  which  their  country  is  best  adapted  ;  and  the 
happiest  distribution  of  those  blessings  is  secured  by  inter- 
communication and  mutual  exchanges  made  as  free  as  pos- 
sible between  all  nations.  In  the  constitution  of  our 
nature,  in  the  divine  Scriptures  and  in  the  records  of 
human  experience  alike,  we  read  this  fundamental,  eco- 
nomic law.  The  enmities,  the  restrictions,  the  isolations 
which  human  selfishness  has  prompted  and  maintained  are 
in  violation  of  this  law.  The  miseries  consequent, 
under  which  the  nations  have  groaned,  are  but  the  penalty 
of  violated  law.  The  broad  philanthropy  which  Chris- 
tianity inculcates  and  aims  to  make  universal  for  the 
world's  emancipation  from  all  evil,  embraces  this  principle 
of  freedom  for  trade. 

In  view  of  these  things  thus  concisely  presented,  we 
are  certainly  justified  in  saying  that  in  the  issue  before  us, 
the  presumption  is  strongly  in  favor  of  free-trade.  On 
the  advocates  of  Protection  therefore  is  thrown  the  burden 
of  proof  for  their  principle  of  restriction.  Let  their  argu- 
ments be  fairly  stated  and  candidly  considered. 

Arguments  for  Protection. — These  arguments 
concentrate  on  the  promotion  of  home-industry,  and  vary 
only  as  they  severally  present  different  aspects  of  the  lead- 
ing thought.  It  is  said, 

1.  Protection  is  necessary  to  secure  that  variety  of  in- 
dustry and  that  balance  of  different  industries  which  are 
essential  to  a  people's  prosperity.  This  is  the  broad  propo- 
sition which  underlies  all,  and  in  a  sense,  includes  all  the 


ARGUMENTS   FOR   PROTECTION.  359 

lines  of  argument  adopted  by  the  advocates  of  this  system. 
The  proposition  embodies  two  statements  which  are  the 
premises  of  a  syllogism.  The  major  premise  is  that  a  bal- 
anced variety  of  industry  is  essential  to  a  people's  prosper- 
ity. The  minor  premise  is  that  Protection  is  a  necessary 
means  to  this  varied  industry.  If  both  are  established  as 
sound  and  true,  the  conclusion  follows  that  the  protective 
policy  is  a  necessary  means  of  highest  prosperity. 

The  first  statement  may  be  resolved  into  several  par- 
ticulars to  bring  out  its  full  force,  as  follows  : 

a.  Every  country  has  a  great  variety  of  resources,  and 
the  development  of  all  its  resources  conduces  to  its  great- 
est wealth. 

b.  Among  the  population  of  every  country,  there  is  a 
corresponding  diversity  of  native  talent,  and  labor  is  most 
effective  when  every  one  has  scope  for  doing  that  for  which 
he  is  best  fitted. 

c.  The  actual  wants  of  men  are  equally  diverse,  and 
the  highest  happiness  of   a   community  depends   on  the 
degree  in  which  all  are  provided  for. 

d.  A  diversity  of  occupations  makes  a  home-market  for 
all  sorts  of  products,  saving  cost  of  transportation,  favor- 
ing division  of  labor,  and  binding  all  classes  together  by 
ties  of  mutual  helpfulness  and  common  interests. 

e.  Varied  industry  favors  the  social  and  moral  advance- 
ment of  a  people,  quickening  and  broadening  minds,  en- 
larging hearts  and  impelling  to  noblest  action  in  the  lines 
of  rectitude  and  benevolence. 

We  recognize  all  of  these  statements  as  elementary 
principles  of  our  science  which  have  come  before  us  repeat- 
edly through  our  previous  discussions.  They  need  but  a 
single  qualification  to  secure  universal  acceptance.  It  does 
not  follow  from  the  general  advantage  of  varied  industry, 
that  a  people  must  always  hasten  to  develop  every  source  of 
wealth  existing  among  them,  or  maintain  at  all  hazards, 


360  EXCHANGE. 

every  possible  form  of  industry.  In  exceptional  cases,  a 
nation  may  have  such  peculiar  advantages  for  a  certain 
kind  of  production,  that  its  wealth  will  be  most  increased 
by  concentrating  its  energies  on  that  to  the  neglect  of 
others.  The  people  of  Barbadoes  have  ample  facilities  for 
raising  provisions,  but  they  have  much  greater  advantages 
for  raising  sugar.  Therefore,  it  is  good  policy  for  them 
to  produce  mainly  sugar,  and  get  provisions  by  exchange 
from  countries  where  the  cost  of  raising  them  is  greater 
even  than  it  would  be  on  their  own  soil.  With  this  quali- 
fication, the  advocates  of  free-trade  not  only  admit  the  ad- 
vantages of  varied  industry,  but  magnify  them  in  support 
of  their  own  theory.  It  is  on  the  second  premise  that  the 
real  issue  is  joined. 

The  affirmation  is  that  protection  is  necessary  to  secure 
diversified  industry.  The  strong  reason  urged  in  support 
of  this  proposition  is  thus  presented  :  '•'  Foreign  competi- 
tion crushes  out  the  home  production  of  all  but  the  rudest 
and  coarsest  articles  of  manufacture,  and  prevents  the  es- 
tablishment of  a  varied  industry,  unless  the  government 
interfere,  as  the  personification  of  the  nation,  and  its  co- 
ordinating power,  to  restore  the  equilibrium  by  discour- 
aging imports." 

We  may  fairly  ask  how  foreign  competition  is  able  to 
do  this.  The  answer  must  be  that  in  some  other  country, 
certain  articles  can  be  produced  more  cheaply  than  at 
home.  We  ask  again,  why  their  production  costs  less 
abroad.  According  to  the  principles  of  our  science,  the 
answer  comes  that  it  must  be  on  account  of  peculiar  ad- 
vantages in  three  respects.  Either  the  foreign  country 
has  superior  natural  resources,  or  it  has  more  abundant 
capital,  free  to  be  employed  in  the  contemplated  indus- 
tries, or  it  has  laborers  in  greater  numbers  and  better 
skilled  for  the  work  to  be  done.  The  argument  implies 
that  the  interference  of  government  discouraging  imports, 


ARGUMENTS   FOR    PROTECTION.  3d 

tends  to  counterbalance  those  advantages  which  the  for- 
eign land  possesses.  We  can  readily  see  that  it  will  do 
this,  so  far  as  those  engaged  in  the  protected  manufacture 
are  concerned.  The  action  of  the  government  forces  up 
prices  so  that  they  can  make  the  goods  and  realize  a  profit. 
But  evidently,  this  is  at  the  expense  of  the  community 
generally.  The  duty  is  a  tax  laid  upon  the  many  for  the 
benefit  of  a  few. 

For  illustration,  suppose  that  English  broadcloth  can 
be  sold  in  Beloit,  at  five  dollars  per  yai'd,  but  it  will  cost 
eight  dollars  a  yard  to  manufacture  cloth  of  the  same 
quality  here.  To  encourage  home-industry,  a  duty  of 
three  dollars  per  yard  is  laid  on  all  English  cloths  im- 
ported. This  will  prepare  the  way  for  that  industry  to  be 
set  up  ;  but  plainly  it  is  sustained  only  by  a  tax  of  three 
dollars  a  yard,  paid  by  every  one  who  wears  broadcloth  of 
either  domestic  or  foreign  production.  The  real  benefit 
of  this  tax  goes  to  the  manufacturers.  The  case  is  the 
same  as  it  would  be  if,  without  the  duty,  every  man  had 
been  allowed  to  buy  cloth  at  five  dollars  a  yard,  but  had 
been  obliged  for  every  yard  that  he  bought  to  pay  three 
dollars  to  the  home-manufacturer.  This  is  a  steady  draft 
on  the  capital  of  the  country — a  burden  laid  upon  the  pro- 
ducts of  other  forms  of  industry. 

To  relieve  this  aspect  of  the  matter,  it  is  said  that  this 
burden  is  but  temporary,  and  will  be  more  than  compen- 
sated by  the  greater  ultimate  benefits  of  a  diversified  in- 
dustry fully  established.  Protection  is  needed  only  to 
nurse  our  manufactures  in  their  infancy,  and  to  hasten 
their  development.  After  being  thus  supported  for  a 
time,  they  will  grow  strong  enough  to  defy  foreign  compe- 
tition. Then  prices  will  be  reduced,  the  tax  can  be 
removed  and  a  lasting  benefit  will  be  realized. 

The  question  arises  again  how  is  this  result  to  be 
bi ought  about  ?  Recurring  to  the  laws  of  production  with 


362  EXCHANGE. 

reference  to  the  three  particulars  of  resources,  capital  and 
laborers,  it  is  quite  evident  that  protection  cannot  add  to 
the  natural  resources  of  a  country,  so  as  to  put  all  coun- 
tries in  this  respect  on  a  level.  Protection  can  never  give 
to  France  the  coal-fields  of  England,  nor  furnish  the 
prairies  of  Illinois  with  the  water-powers  that  abound  in 
New  England,  nor  secure  to  Germany  the  facilities  for 
raising  cotton  which  the  southern  states  of  our  republic 
enjoy. 

What  protection  does  to  accomplish  the  result  claimed 
for  it,  must  be  then,  through  its  effect  on  capital  or  labor. 
The  enactment  of  a  protective  tariff  obviously  cannot 
create  capital.  Capital  springs  and  grows  only  by  industry 
and  frugality.  It  is  the  fruit  of  saving.  As  products  are 
increased  and  expenses  diminished,  there  is  a  chance  for 
adding  steadily  to  capital  the  difference  between  wealth 
consumed  and  wealth  produced.  But,  as  we  have  seen,  a 
protective  tariff  enhances  the  price  of  certain  articles  of 
general  consumption.  It  may  touch  the  materials  of  in- 
dustry ;  it  may  touch  things  necessary  to  the  support  of 
laborers.  Just  so  far  as  it  does  this  in  either  direction,  it 
increases  the  cost  of  production  and  the  cost  of  living,  and 
thus  diminishes  the  chance  for  saving.  It  makes  capital 
less  effective  except  in  the  line  of  the  protected  industry. 
The  capital  of  the  community  generally  is  impaired,  not 
strengthened. 

Much  the  same  thing  must  be  said  of  the  effect  of  this 
policy  on  labor.  Legislation  has  no  power  to  create  men. 
The  natural  increase  of  population  depends  chiefly  on  the 
means  which  a  country  possesses  for  the  support  of  a  popu- 
lation, and  the  facilities  it  offers  for  the  accumulation  of 
wealth.  Where  the  necessaries  of  life  are  abundant,  and 
there  is  free  scope  for  profitable  employment,  large  fami- 
lies are  raised.  The  same  considerations  constitute  the 
chief  attraction  to  draw  in  foreign  laborers.  Men  emi- 


ARGUMENTS   FOU   PROTECTION.  363 

grate  to  better  their  condition.  The  first  effect  of  protec- 
tion is  simply  to  concentrate  labor  on  one  employment,  and 
to  lay  a  special  burden  on  all  others  for  the  benefit  of  the 
favored  occupation.  Nominal  wages  may  thus  be  raised, 
but  real  wages  are  reduced  by  the  enhanced  price  of  the 
necessaries  and  comforts  of  life.  This  means  that  the 
stimulus  to  labor  generally  and  its  efficiency  are  impaired. 

The  advocates  of  protection  in  their  reasoning,  seem  to 
lose  sight  of  the  fact  that  this  policy  can  do  little  more  than 
to  change  the  direction  of  both  capital  and  labor.  When 
articles  of  foreign  production  are  imported,  they  are  to  be 
paid  for  by  the  products  of  home  labor  and  capital,  and 
the  question  of  economy  is,  which  is  the  cheapest — which 
will  bring  the  largest  returns  fora  certain  amount  of  labor, 
to  make  these  articles  ourselves  or  to  make  something 
else  with  which  to  buy  them  ?  Left  free  from  government 
interference,  home  labor  and  capital  will  lay  hold  of  what- 
ever natural  resources  a  country  possesses,  and  with  refer- 
ence to  both  home  wants  and  foreign  wants,  produce  the 
things  most  feasible  and  desirable,  at  the  cheapest  possible 
rates.  The  surplus  of  these  products  will  pay  for  the  for- 
eign goods  purchased.  Intelligent  judgment  and  free 
choice  determine  the  direction  given  to  capital  and  labor, 
to  establish  those  industries  which  are  most  advantageous. 
But  protection  comes  in  to  overrule  this  spontaneous 
action.  It  assumes  that  a  government  can  judge  bettet 
than  themselves  what  is  for  the  people's  advantage,  and  so 
dictates  a  diversion  of  capital  and  labor  to  new  employ- 
ments. Such  a  change  is  in  itself  a  disadvantage.  It 
involves  more  or  less  loss  of  capital  and  of  skill  in  labor. 

The  protectionist  says,  "  Nobody  asks  that  protection 
as  a  system  shall  be  permanent.''''  Yet  it  is  an  incontro- 
vertible fact  that  in  the  history  of  protective  legislation, 
no  li  infant  industry"  that  has  been  nursed  by  this  policy 
has  ever  grown  to  such  maturity  of  strength  and  self-sup- 


364  EXCHANGE, 

port  as  to  be  ready,  voluntarily,  to  dispense  with  the  help- 
ing hand  of  law  and  face  foreign  competition  in  its  own 
strength  alone.  The  English  landholders  clung  to  their 
corn-laws  to  the  last.  The  iron  manufacturers  in  our 
country  have  at  times,  under  high  tariffs,  done  extensive 
business  and  made  great  profits,  but  they  have  kept  up  the 
prices  of  their  product  and  always  resented  every  proposed 
reduction  of  the  duty.  Is  not  this  fact  a  virtual  confes- 
sion that  "  Protection  fails  to  protect,"  that  this  interfer- 
ence of  government  to  direct  the  industries  of  a  people 
fails  of  its  aim  ? 

But  against  the  assertion  that  protection  is  necessary 
to  develop  varied  industry,  it  may  be  positively  affirmed 
that  there  is  a  letter  and  surer  way  of  reaching  that  result. 
Where  no  interference  or  obstruction  is  allowed,  there 
comes  a  spontaneous  development  which  is  safe  and  con- 
stant because  it  is  in  accordance  with  nature's  law.  We 
may  unfold  the  thought  in  a  few  distinct  yet  connected 
propositions  as  follows  : 

a.  There  is  a  natural  growtli  of  human  industry,  the 
laws  of  which  are  as  fixed  and  certain  as  those  which  per- 
tain to  the  growth  of  vegetation. 

b.  Free  competition  is  the   healthy  stimulus   to  that 
growth. 

c.  Under  the   natural   law   of   development,  industry 
will  be  applied  to  the  several  native  resources  of  a  country 
as  fast  as  the  increase  of  labor  and  capital  will  warrant. 

d.  Men's  instinct  for  accumulation  following  diverse 
individual  capacities,  tastes  and  predilections,  is  the  safest 
guide  to  determine  the  order  in  which  labor  and  capital 
shall  be   applied  to    those  various   resources.     Under   it, 
whatever  promises  a  profit  will  be  undertaken  as  soon  as  it 
can  be  without  sacrificing  a  greater  profit  elsewhere. 

e.  The  attempt  to  force  labor  and  capital  into  certain 
employments    before  their   time,   deranges   the   order   of 


ARGUMENTS   FOR   PROTECTION.  365 

nature  and  produces  reactions  which  hinder  the  desired 
result. 

/.  At  any  stage  of  this  development,  if  exchange  is 
tree,  foreign  products  are  purchased  with  the  fruits  of  a 
people's  most  efficient  labor,  that  is,  with  those  articles 
which  they  can  then  produce  to  the  best  advantage  ; 
which  they  can  best  afford  to  part  with,  because  they  are 
obtained  at  the  least  cost.  By  all  such  advantageous 
trade,  capital,  the  prime  element  of  varied  industry,  is  in- 
creased and  labor  is  sustained. 

g.  When  by  this  natural  progress,  a  people  come  to 
take  up  a  new  industry  for  which  they  have  natural  advan- 
tages and  God-given  capacity,  no  foreign  competition  can 
crush  it,  for  even  in  its  infancy,  it  is  charged  with  the 
nation's  life  and  strength. 

h.  An  industry  which  is  not  indigenous,  which  has  no 
natural  advantages,  or  which  is  prematurely  set  up  and 
fostered  by  artificial  means,  can  have  only  a  sickly,  uncer- 
tain life,  and  is  supported  at  a  wasteful  expenditure  of  a 
nation's  resources. 

2.  It  is  strongly  urged  as  an  argument  for  protection, 
that  it  is  a  necessary  means  of  maintaining  national  inde- 
pendence. This  is  a  very  specious  argument,  because  the 
term  national  independence  has  a  patriotic  ring  to  which 
the  popular  ear  and  the  popular  heart  are  peculiarly  sensi- 
tive. But  as  used  in  the  proposition  before  us,  it  simply 
covers  a  subtle  sophistry  and  makes  it  pass  for  sound  rea- 
soning. For  an  individual  and  for  a  nation,  there  are  two 
kinds  of  independence.  One  may  withdraw  from  his  fel- 
low-men to  a  cave  in  the  wilderness  and  in  contact  with 
none  else,  keep  himself  alive  and  possibly  find  interest  and 
enjoyment  in  a  hermit  life.  He  may  glory  in  his  inde- 
pendence. But  is  there  anything  noble  in  such  isolation  ? 
Is  it  the  way  for  a  man  to  make  the  most  of  himself  ?  Is 


366  EXCHANGE. 

this  the  kind  of  independence  which  young  men  should  be 
taught  to  aspire  to  and  maintain  ?  The  independence  of 
genuine  manhood  is  of  another  sort.  It  is  individuality 
of  capacities,  acquisitions  and  character  which  is  able  to 
stand  on  its  own  basis  in  full  and  free  relations  with  fel- 
low men.  It  is,  in  the  midst  of  society,  a  distinct  person- 
ality, giving  and  receiving,  supporting  and  supported, 
blessing  and  blessed  through  the  varied  intercourse  which 
nature  prompts  and  by  which  the  completest  development 
of  the  man  and  of  the  race  is  advanced. 

The  same  distinction  is  to  be  recognized  with  respect 
to  nations.  There  is  an  independence  of  isolation  such  as 
China  and  Japan,  until  recently,  maintained — such  as  the 
despot  Francia  attempted  to  secure  for  Paraguay,  when  he 
stopped  all  ingress  and  egress,  held  the  shipping  in  the 
river  till  it  rotted  and  fell  to  pieces,  and  compelled  his 
people  to  restrict  their  desires  to  those  things  which  they 
could  produce  for  themselves.  But  that  independence 
which  is  the  strength  and  glory  of  a  nation  is  of  another 
kind.  It  is  an  individuality  of  national  resources  and 
character  which  stands  up  in  the  full  brotherhood  of 
nations,  and  in  the  consciousness  of  its  own  strength  enters 
into  all  offices  of  mutual  dependence  through  which  nations 
grow  and  civilization  makes  progress. 

The  policy  of  protection  fosters  the  narrower  kind  of 
independence.  It  is  a  restrictive  policy.  Carried  out  to 
its  logical  conclusion,  according  to  its  manifest  tendency, 
it  leads  to  isolation.  The  sophistry  referred  to  consists  in 
the  concealment  of  this  fact,  while  the  term  "  national  in- 
dependence "  is  used  in  its  broader,  nobler  sense.  To  link 
protection  as  a  cause  with  such  independence  is  a  pure  as- 
sumption, false  and  deceptive. 

In  an  economic  point  of  view,  the  real  independence  of 
a  nation  is  commercial  independence.  That  is  reached  and 
secured,  as  a  people,  by  the  development  of  their  own 


ARGUMENTS  FOE   PROTECTION.  3G7 

resources,  are  able  to  provide  for  themselves,  in  part  by 
their  own  productions,  and  for  the  rest,  by  commanding 
the  needed  productions  of  other  nations,  by  offering  in  tlio 
market  of  exchange,  what  other  nations  want.  The  basis 
of  such  independence  is  the  home  production  of  wealth. 
But  the  way  to  increase  wealth  is  to  use  to  the  best  possi- 
ble advantage  the  gifts  of  nature,  and  then,  in  the  world's 
great  mart,  sell  where  things  can  be  sold  on  the  best  terms 
and  buy  where  things  can  be  bought  on  the  best  terms. 
That  nation  is  strongest  and  most  complete  in  her  inde- 
pendence, which  can  open  most  freely  every  avenue  for  the 
wealth  of  the  world  to  flow  in  upon  her,  because,  as  the 
fruit  of  her  own  vital  energies,  freely  exerted,  she  has 
wealth  in  abundance  to  give  a  fair  equivalent. 

A  nation  comes  to  this  full  maturity  by  a  steady  nat- 
ural growth,  just  as  a  child  comes  to  full  manhood.  In 
both  cases,  freedom  is  the  law  of  growth.  The  old  myth- 
ology tells  us  that  once  the  head  of  Zeus  was  opened, 
and  there  leaped  forth  into  the  world  a  virgin  full  grown 
and  full  armed.  But  not  even  in  myth  or  legend,  do  we 
read  of  any  nation  thus  born  in  full  maturity  of  strength. 
The  effort  by  protection  to  hasten  a  nation's  independence 
is  like  binding  an  infant's  limbs  in  splints,  that  it  may 
sooner  stand  alone.  The  artificial  appliance  may  develop 
prematurely  a  single  function,  but  it  is  at  a  wasteful 
expense  of  general  vigor,  and  is  quite  sure  to  induce 
chronic  weakness  and  deformity. 

The  presentation  of  these  two  arguments  has  covered 
nearly  the  whole  ground  of  the  discussion,  and  brought 
into  view  the  leading  points.  A  few  words  will  suf- 
fice to  dispose  of  what  other  arguments  we  need  to 
notice. 

3.  The  advantages  of  a  home-market  for  agricultural 
products  are  often  urged  in  favor  of  the  protective  system. 


368  EXCHANGE. 

Certainly  it  is  an  advantage  to  a  farmer  to  find  in  a  man 
ufacturing  village  near,  a  market  for  his  produce.  It  will 
save  him  a  part,  at  least,  of  the  cost  of  transporting  it  to 
the  distant  commercial  city.  But  if  this  market  is  made 
and  sustained  for  him  by  a  protective  tariff,  he  must  pay 
for  tools,  for  salt,  for  dry-goods,  for  all  the  manufactured 
articles  he  needs,  from  twenty  to  fifty  per  cent  more  than 
they  would  cost  him  under  the  rule  of  free-trade.  May 
not  this  offset  all  the  gain  on  the  other  side  ? 

The  assumption  that  protection  creates  the  home- 
market  is  a  fallacy.  These  centres  of  varied  industry 
grow  up  naturally  and  healthily  with  the  increase  of  popu- 
lation and  wealth.  Mechanical  genius,  the  investigating 
turn  of  mind,  the  energy  of  will-power,  managing  capa- 
city— these  qualities  come  not  of  protective  tariffs.  They 
are  the  gifts  of  God  to  men.  Left  to  themselves,  they  go 
out  spontaneously  to  lay  hold  on  all  gifts  of  God  in  nature, 
and  using  all  available  capital,  set  up  the  workshops  of 
industry,  and  bring  out  the  treasures  of  wealth  in  ever- 
increasing  measure. 

Furthermore,  the  term  "  home-market "  has  force  in 
this  discussion,  only  as  it  implies  the  production  at  home 
of  all  manufactures  wanted  and  the  consumption  at  home 
of  all  agricultural  produce  raised — a  condition  of  things 
attainable,  if  at  all,  only  after  the  lapse  of  centuries. 
Meantime,  a  people  must  buy  the  things  they  cannot  pro- 
duce, by  selling  the  surplus  of  that  which  they  can  pro- 
duce. For  a  long  time  to  come,  this  country  will  have  a 
large  surplus  of  breadstuffs,  cotton,  petroleum,  silver  and_ 
gold  to  dispose  of.  We  can  sell  to  others  only  as  we  give 
others  a  fair  chance  to  sell  to  us.  Domestic  commerce  and 
foreign  commerce  are  necessarily  interlocked.  The  prices 
of  agricultural  produce  in  our  home-markets  are  deter- 
mined by  the  prices  in  markets  abroad.  Where  trade  is 
freest,  the  prices  will  on  the  average  be  the  best.  Hence, 


ARGUMENTS    FOB    PROTECTION-.  3C9 

free-trade  is  the  essential  condition  of  a  sound  and  healthy 
home-market. 

4.  It   is  said   that   the  free   introduction   of  foreign 
fabrics  tends  to  briny  our  American  laborers  down  to  the 
level  of  the  "pauper  labor"  of  the  old  world.     The  expres- 
sion "pauper  labor  "  suggests  something  frightful  to  inde- 
pendent freemen,  and  hence  with  our  common  people,  this 
plea  is  probably  more  effective  than  any  other  ;  but  a  few 
simple  facts  take  away  the  point  of  this  argument.     The 
laborers   in   England,    which   is   the    old  country  chiefly 
referred  to,  who  are  the  lowest  in  the  scale  of  living,  are 
those  engaged  in  agriculture.      Our  agricultural  laborers, 
though  they  have  no  benefit  from  protection,  may  safely 
defy  their  competition.     The   nominal  wages   of  skilled 
labor  employed  in   manufactures   in   England,  are  lower 
than  those  of  the  same  class  in  this  country.     But  careful 
inquiry  shows  that  the  low  wages  of  the  English  artisan 
will  go  quite  as  far  as  the  higher  rates  paid  here  in  secur- 
ing the  necessaries  and  comforts  of  life.     The  competition 
then,  is   unequal  only   in   appearance.     It   can   have   no 
effect   to  degrade   our   working-men.     If    our  protective 
duties  were  removed,  wages  might  decline  in  full  propor- 
tion.    Even  if  the  case  were  as  strong  as  the  argument 
implies,  the  low  wages  of  foreign  labor  would  be  of  advan- 
tage to   all  consumers   at  home,  including  our  laborers. 
We  should  get  certain  articles  all  the  cheaper,  and  our 
labor  devoted  to  other  forms  of  production  for  which  we 
have  advantages,  would  bring  larger  returns  through  the 
exchange. 

5.  It  is  said  again  that  protection  is  necessary  to  the 
development  of  skill  in  manufactures.     We  may  turn  the 
previous  argument  to  meet  this.     So  long  as  wages  are 
higher  in  our  country  than  abroad,  they  will  bring  over  to 

16* 


370  EXCHANGE. 

our  aid  the  best  acquired  skill  of  the  old  world.  For  the 
development  of  advanced  skill  and  the  invention  of  new 
devices,  free,  sharp  competition  is  the  highest  stimulus. 
Protection  interferes  with  this  and  thus  removes  the  spur 
to  best  endeavor. 

6.  Protection  is  often  advocated  as  a  means  of  Retalia- 
tion.    A  nation  will  not  fully  receive  our  products  and  we, 
in  order  to  punish  her  and  oblige  her  to  change  her  policy, 
refuse  to  receive  hers.     This  certainly  is  not  a  virtuous  nor 
an  honorable  motive  to  action  in  either  an  individual  or  a 
nation.     Retaliation  is  not  generally  wise,  since  in  the  hot 
spirit  of  vindictiveness,  it  prompts  men  to  measures  which 
are  likely  to  injure  themselves  as  much  as  their  opponents. 
A  worthy  example  of  self-reliance  and  manly  generosity 
will  be  more  effective  to  lead  another  country  to  change 
her  policy,  than  any  threat  or  act  of  retaliation.     If  the 
narrow  policy  of  another  nation  excludes  our  products,  so 
that  we  cannot  trade  directly  with  her,  it  may  yet  be  both 
feasible  and  profitable  to  procure  her  products  by  means 
of  a  double  exchange  through  a  third  country.     We  surely 
injure  ourselves  when  we  pay  five  dollars  for  an  article 
which  we  could  just  as  well  get  for  three.     There  is  no 
profit  in  the  mere  gratification  of  spite. 

7.  It  may  be  asked,  if  the  policy  of  protection  is  so  un- 
reasonable, how  is  it  that  so  many  men  of  clear  intellect  and 
practical   wisdom,  approve  and    maintain  it,   and  that, 
through  the  centuries  past,  it  has  been  by  the  nations  so 
generally  adopted  9     The  question  is  well  answered  by  the 
French   economist   Bastiat,    in   a   paper   entitled    ''  That 
which  is  Seen  and  that  which  is  not  Seen,"  in  which  he 
shows  that  protection  is  maintained  principally  by  a  view 
of   what  the  few  producers  gain   and  a   concealment  of 
what  the  manv  consumers  lose  ;  and  that  if  the  losses  of 


ARGUMENTS    FOR    PROTECTION.  371 

the  million  were  as  patent  and  palpable  as  the  profits  of 
the  few,  no  nation  would  tolerate  the  system  for  a  dav. 
The  apparent  benefit  of  protection  is  concentrated  and 
strikes  the  eye  at  ouce,  while  its  evils  are  widely  diffused 
and  escape  notice  except  on  thoughtful  investigation. 

The  theory  of  protection  indeed,  comes  to  us,  an  in- 
heritance of  the  past,  supported  by  a  kind  of  prescriptive 
right  from  long  usage.  But  tracing  it  back  we  find  its 
origin  in  the  old  doctrines  that  nations  are  natural  ene- 
mies to  each  other,  that  in  every  profitable  exchange, 
'•  What  one  man  gains  must  be  another  man's  loss."  that 
commerce  can  benefit  one  country  only  as  it  injures 
another,  and  that  a  nation's  wealth  is  increased  only  as 
money  is  brought  in  and  held  fast.  These  false  doctrines 
led  to  the  most  harassing  restrictions  on  all  commercial 
intercourse.  The  different  trades  were  organized  as  rival 
guilds,  each  fenced  round  with  secrets  and  endowed  with 
peculiar  privileges.  Tolls  were  collected  at  every  city's 
gates  on  all  goods  brought  in.  Each  nation  sought  to 
build  up  its  own  industry  by  breaking  down  that  of 
others.  Strange  enactments  were  made  to  favor  particular 
manufactures.  Thus  to  protect  the  woolen  manufacture 
in  England,  it  was  ordained  that  no  man  might  buy  wool 
within  fifteen  miles  of  the  sea  without  permission  of  the 
king,  and  that  every  corpse  should  be  buried  in  a  woolen 
shroud.  Not  a  century  and  a  half  ago,  a  great  statesman 
of  England  said  in  the  house  of  Lords.  "If  our  wealth  is 
diminished,  it  is  time  to  ruin  the  commerce  of  that  nation 
which  has  driven  us  from  the  markets  of  the  continent,  by 
sweeping  the  seas  of  their  ships  and  blockading  their  ports." 
Happily,  with  the  advance  of  civilization,  other  and  better 
views  have  supplanted  those  old  doctrines  and  the  absurd 
regulations  have,  for  the  most  part,  disappeared  from  the 
statute-books.  The  protective  system,  however,  still  lin- 
gers, the  last  phase  of  feudal  isolation,  and,  strange  to  say, 


372  EXCHANGE. 

rules  with  strongest  sway  the  policy  of  our  free  republic. 
How  long  shall  it  resist  the  spirit  of  liberty  and  fraternity 
which  is  rallying  all  nations  to  mutual  good-will  and 
cooperation  ? 

Positive  Objections  to  the  system  of  Protec- 
tion.— From  the  actual  operation  of  the  system,  evils  pro- 
ceed which  expose  its  inherent  impolicy  and  injustice. 
Here  we  deal  with  plain  facts. 

1.  Protection  introduces  and  fosters  antagonism  between, 
the  different  industries  of  a  country.  The  idea  of  giving 
protection  to  every  branch  of  industry  is  absurd.  The 
theory  implies  special  encouragement  to  the  production  of 
certain  articles.  But  when  government  interferes  to  favor 
one  industry  by  raising  the  price  of  its  products,  it  taxes 
all  other  interests.  The  duty  on  foreign  coal  is  a  benefit 
to  those  who  work  our  coal-mines,  but  an  injury  to  every 
manufacturer  who  uses  coal.  Hence  collision  of  interests 
between  the  producers  and  the  consumers  of  coal.  The 
wool-grower  finds  that  the  duty  which  protects  the 
woolen  manufacture  increases  the  cost  of  his  clothing, 
while  the  competition  of  cheap  wools  from  abroad  keeps 
down  the  price  of  his  product.  He  applies  for  protection. 
But  if  granted,  this  will  reduce  the  manufacturer's  profit, 
and  he  protests  and  resists.  Thus  two  parties  whose  in- 
terests are  really  one,  are  set  against  each  other  in  a  con- 
flict injurious  to  both.  The  boot  and  shoe  manufactures 
of  our  country,  through  the  Yankee  genius  for  invention, 
with  no  special  protection,  grew  naturally  into  one  of  our 
most  profitable  branches  of  industry.  But  a  duty  laid  on 
leather  and  hides,  for  somebody's  protection,  robbed  our 
manufacturers,  in  part  at  least,  of  their  rightful  advantage 
in  the  world's  market.  The  main  point  of  our  objection 
is  very  clear  in  the  case  of  the  duty  on  foreign  steel,  as 
presented  by  Mr.  Amasa  Walker.  '•'  The  whole  num- 


OBJECTIONS   TO    PROTECTION.  373 

her  of  persons  engaged  in  the  direct  manufacture  of 
steel  in  the  United  States,  as  the  special  Commissioner  of 
Revenue  informs  us,  does  not  exceed  three  thousand  five 
hundred  ;  while  the  number  of  those  who  use  steel  as 
a  raw  material  for  the  manufacture  of  axes,  chisels,  files, 
cutlery,  spades,  shovels,  pistols,  machinery  and  other 
tools  and  implements,  is  not  less  than  two  hundred 
thousand ;  while  an  addition  of  those  indirectly  inter- 
ested in  having  cheap  steel  would  swell  this  number  to 
one  million,  five  hundred  thousand."  In  this  case,  the 
few  more  easily  combine  to  perpetuate  their  advantage,  on 
account  of  each  one's  large  and  immediate  interest  ;  while 
the  disadvantage  is  distributed  in  smaller  proportions  to 
the  many  and  their  eyes  are  only  half  opened  to  discern 
its  measure  and  its  cause.  But  the  conflict  begins  to  be 
defined  and  the  issue  must  in  due  time  be  joined. 

2.  Tlie  unnatural  stimulus  given  by  protective  legisla- 
tion leads  to  over-production  and  consequent  stagnation 
and  failure.  The  first  effect  of  a  high  duty  is  to  raise 
prices  and  so  to  increase  the  profits  of  the  protected  indus- 
try. Men  eager  to  get  this  advantage  turn  capital  and 
labor  into  this  form  of  production  and  push  their  business 
with  great  zeal.  Old  establishments  are  enlarged,  new 
establishments  are  hastily  and  ignorantly  set  up.  They 
are  run  by  untried  managers,  worked  by  inexperienced 
hands  and  turn  out  an  imperfect  product  in  great  profu- 
sion, till  the  market  is  glutted,  prices  decline  and  the  end 
is  stagnation;  and  with  many  bankruptcy.  All  this  was 
strikingly  illustrated  by  facts  in  the  manufacture  of  paper. 
During  the  late  war,  a  heavy  duty  was  laid  on  the  import 
of  paper,  and  at  the  same  time,  the  demand  was  greatly 
increased.  The  price  of  the  article  rose  rapidly,  yielding 
extraordinary  profits  to  the  mills  already  established. 
This  led  to  the  enlargement  of  the  old  mills,  and  a  host 
of  new  men  rushed  into  the  business.  During  the  vears 


374  EXCHANGE. 

1864-6,  just  as  the  war  was  closing,  more  paper-mills  were 
set  up  than  during  the  twelve  years  previous.  As  a  conse- 
quence, the  market  was  over-stocked  just  as  the  special 
demand  ceased,  prices  fell  and  general  stagnation  followed  ; 
and  when  in  1869,  a  great  freshet  in  Massachusetts  swept 
off  a  number  of  these  mills,  a  journal  devoted  to  the  ad- 
vocacy of  protection  said,  '•'  This  disaster  will  work  to 
the  advantage  of  those  who  escaped  the  flood,  and  we 
doubt  not  that  those  mills  that  did  stand  will  do  a  better 
business  in  consequence  of  the  lessened  supply."  Surely 
there  must  be  something  wrong  in  a  policy  which  causes 
the  sweeping  destruction  of  property  to  be  regarded  as  a 
public  blessing.  We  find  a  fit  counterpart  to  this  fact  in 
the  salt-manufacturers  of  Ohio,  who  in  order  to  keep  up 
their  profits  united  to  lease  the  Kanawha  salt-works  of 
Virginia,  with  their  superior  facilities,  only  to  close  them 
up  and  forbid  competition  from  that  quarter.  No  branch 
of  industry  has  been  more  clamorous  for  protection  than 
the  iron  interest.  None  has  been  more  constantly  favored, 
and  in  none  have  these  fluctuations  been  greater.  As  the 
year  1878  opens,  it  is  prostrate.  The  diagnosis  of  the  case 
by  the  economic  physician  declares  it  "  sickiuell  nigh  unto 
death  by  reason  of  excessive  protection." 

3.  Protection  diminishes  the  legitimate  revenues  of  the 
government,  at  the  same  time  that  it  lays  a  heavy  tax  on 
the  people.  A  government  must  be  sustained  by  revenues 
derived  from  taxation.  The  imposition  of  equitable 
duties  on  imports  is  admitted  by  the  advocates  of  free 
trade  as  a  legitimate  mode  of  raising  a  revenue.  A  strictly 
revenue  tariff  has  no  disturbing  influence  on  trade,  nor 
does  it  conflict  with  the  free  development  of  a  nation's 
varied  industry.  But  a  protective  tariff  has  another  end 
in  view.  That  end  would  be  most  fully  attained  by  duties 
high  enough  to  prevent  altogether  the  importation  of  cer- 
tain articles.  If  it  attains  its  end  in  any  degree,  it  must 


OBJECTIONS  TO  PROTECTION.          375 

restrict  importations.  In  either  case,  it  reduces  the  reve- 
nue actually  derived  from  this  source.  Meantime,  the 
whole  community  is  taxed  by  the  extra  thirty,  sixty,  or 
whatever  per  cent  is  added  to  the  price  of  every  yard  of 
silk,  and  every  pound  of  iron,  etc.,  consumed. 

If  therefore,  it  were  wise  for  the  government  directly 
to  encourage  particular  industries,  a  system  of  Bounties 
would  be  far  more  economical  than  that  of  a  protective 
tariff.  If  foreign  silk  can  be  sold  in  our  market  for  three 
dollars  a  yard,  while  it  costs  five  dollars  a  yard  to  produce 
an  article  of  the  same  quality  here,  a  bounty  of  two  dol- 
lars a  yard,  paid  by  the  government  to  the  home-manufac- 
turer, will  put  him  on  a  level  with  the  foreign  manufac- 
turer. The  people  then,  can  buy  all  the  silk  they  need  at 
three  dollars,  choosing  freely  between  the  home  and  the 
foreign  product.  Consumption  is  not  diminished  by  an 
enhanced  price,  and  the  only  public  burden  involved  is  to 
provide  for  the  bounty  on  the  home  product.  Every  dollar 
of  the  tax  drawn  from  the  people  goes  directly  to  its  object. 
In  such  a  case  however,  it  would  be  clearly  seen  just  what 
the  artificial  stimulus  to  the  silk  manufacture  costs  ;  and 
this  is  the  chief  reason  why  the  system  of  bounties  is  not 
employed.  The  inequality  and  injustice  of  the  principle 
common  to  both  this  and  the  protective  system  would  be 
too  apparent  to  be  long  tolerated. 

4.  The  policy  of  protection,  in  its  application  must  be 
unstable,  disturbing  (he  course  of  industry  by  frequent 
changes.  This  follows  inevitably  from  the  conflict  of  in- 
terests referred  to.  As  soon  as  a  high  duty  on  iron  shows 
its  effects  in  prices,  all  who  use  iron  as  the  material  of 
their  industry  begin  to  clamor  for  a  change  of  the  tariff  in 
that  particular.  Again,  the  advantage  which  protection 
gives  is  eagerly  sought  by  all.  Hence  on  the  one  side,  a 
pressure  to  extend  the  tariff-list,  is  resisted  on  the  other  by 
an  effort  to  make  the  singular  privilege  exclusive.  Under 


376  EXCHANGE. 

these  influences,  it  is  impossible  to  settle  an  order  which 
shall  be  permanent.  It  is  a  historical  fact  that  scarcely 
a  session  of  our  Congress  passes  without  attempts  to  change 
the  tariff.  It  never  is  nor  can  be  made  satisfactory  to  all. 
This  changeful  legislation  works  disaster  on  particular  en- 
terprises, and  throws  uncertainty  into  all  arrangements 
and  plans  of  business.  A  protective  tariff  can  never  be 
made  fair  and  equal  to  all,  for  its  fundamental  principle 
is  an  unjust  favoritism  against  which  those  not  favored 
instinctively  protest  and  contend. 

5.  Protection  tends  to  demoralize  our  national  legisla- 
tion. The  so-called  "  lobby  influence  "  at  Washington  has 
become  proverbial.  It  is  an  influence  which  works  to 
carry  through  enactments  of  law  by  regard  to  private  in- 
terests, rather  than  to  principles  of  right  applied  to  the 
public  weal.  The  lobby  is  thronged  with  representatives 
of  certain  manufactures  seeking  to  obtain  or  to  perpet- 
uate special  protection.  They  use  money  freely,  not  per- 
haps in  the  way  of  direct  bribery,  but  in  a  way  to  work 
influence.  The  consequence  is  that,  to  a  great  extent, 
legislation  on  the  tariff  is  determined  by  the  bearing  of 
certain  measures  on  a  pending  election,  or  on  interests 
which  especially  concern  the  constituents  of  congressmen. 
Bargains  are  made  to  combine  the  friends  of  separate 
measures,  when  votes  are  given.  This  mode  of  disposing 
of  questions  becomes  habitual.  It  opens  the  door  for 
subsidies  and  other  corrupt  measures.  All  proposed  acts 
come  to  be  judged  of  not  by  their  real  merits  as  right 
and  good  for  the  state  as  a  whole,  but  by  their  relation  to 
personal  emolument,  place  and  power.  Genuine  states- 
manship is  thus  over-ruled  and  degraded.  We  do  not 
charge  these  tendencies  wholly  on  protection.  But  it  is 
evident  to  every  careful  observer  that  these  corrupting  in- 
fluences are  the  natural  outgrowth  of  this  policy,  and  con- 
centrate around  the  measures  which  it  dictates. 


HISTORICAL   RESULTS.  377 

6.  Protection  tends  to  corrupt  the  public  morals  and  the 
public  service.  It  offers  strong  temptations  to  the  viola- 
tion of  law  by  smuggling.  Against  this  temptation,  the 
consciences  of  men  oppose  but  slight  resistance,  because 
the  tariff  law  rests  on  no  grounds  of  absolute  right.  On 
the  contrary,  it  is  easy  for  men  to  persuade  themselves 
that  these  enactments  are  unjust.  Respect  for  the  law 
and  its  force,  as  a  rule  of  action  generally,  are  thus  im- 
paired. The  nice  sense  of  honor  and  right  is  deadened 
and  the  making  of  false  invoices,  the  swearing  of  false 
oaths  and  direct  bribery  at  the  custom-house  are  regarded 
as  venial  sins.  Very  naturally,  government  officials  are 
drawn  into  direct  collusion  and  partnership  with  these 
crimes  and  betray  the  sacred  public  trusts  with  which  they 
are  charged.  The  corruption  which  thus  attends  the  col- 
lection of  duties  at  the  port  of  New  York  is  notorious. 
For  many  months,  honest  importers  have  been  compelled 
to  abandon  the  attempt  to  bring  in  foreign  silks,  paying 
full  duties,  because  the  market  is  full  of  smuggled  goods. 
The  same  thing  is  true  of  many  other  articles  on  which 
the  duty  is  high.  The  Hercules  who  is  equal  to  the  task 
of  cleansing  that  Augean  stable,  by  some  measure  of 
"civil  service  reform  "  has  not  yet  appeared.  The  evil  is 
BO  inherent,  that  we  have  reason  to  believe  it  cannot  be 
eradicated  except  by  the  overthrow  of  the  system  ;  mean- 
time it  is  diffusing  a  subtle  moral  poison  through  our 
whole  body  politic. 

We  may  conclude  this  discussion  with  a  few  words 
respecting  Historical  Results,  often  brought  forward 
with  confidence  by  the  advocates  of  protection.  The  his- 
torian Froude  says  "  It  often  seems  to  me  as  if  history  was 
like  a  child's  box  of  letters  with  which  we  can  spell  any 
word  we  please."  In  the  use  of  this  kind  of  argument, 
there  is  constant  danger  of  running  into  the  logical  fallacy 


378  EXCHANGE. 

of  "  non  causa  pro  causa  " — of  giving  a  mere  coincidence 
the  force  of  a  cause.  The  remark  is  especially  true  con- 
cerning the  subject  before  us,  because  what  seems  like  a 
state  of  industrial  and  commercial  prosperity  is  often  illu- 
sive, and  where  it  is  real,  it  is  the  effect  of  many  causes 
combined,  or  the  resultant  of  opposing  forces.  Thus  the 
wonderful  activity  of  business  in  our  country  just  after  the 
late  war  closed,  was  generally  considered  as  betokening 
sound  prosperity.  Later  experience  has  shown  that  the 
nation  was  then  acting  under  the  wild  delirium  of  a  burn- 
ing fever. 

It  is  a  fact  that  the  Jewish  money-lenders  in  mediaeval 
times,  grew  rich  and  thrived  when  persecuted,  defrauded 
and  oppressed  without  mercy  by  kings  and  feudal  lords. 
Shall  we  say  that  their  wrongs  were  the  cause  of  their 
thrift ;  or  that  by  their  persistent  energy  under  the  passion 
for  gain,  they  grew  rich  in  spite  of  oppression  ?  So  also  the 
industry  and  commerce  of  European  cities  from  the  twelfth 
to  the  fourteenth  centuries  steadily  increased  amid  hostile 
rivalries  between  themselves,  narrow  restrictions  on  con- 
flicting guilds  and  constant  exposure  to  plunder  by  robber 
barons.  It  would  surely  be  a  mistake  to  say  that  the  sub- 
jection to  these  rivalries,  restrictions  and  robberies  was  the 
cause  of  their  prosperity.  It  is  a  fact  that  in  England, 
the  protective  policy  has  been  till  within  the  last  forty 
years,  persistently  and  vigorously  maintained.  It  is  also  a 
fact  that  while  this  policy  prevailed,  England  grew  in 
wealth  and  power  through  her  manufacturing  and  com- 
mercial industries.  But  does  the  coincidence  of  these  two 
facts  in  time  establish  the  relation  of  cause  and  effect 
between  them  ?  The  truth  is  that  where  there  are  large 
material  resources  in  a  country,  and  vital  energy  in  its 
people,  industry  will  develop  wealth  in  spite  of  all  obstruc- 
tions, just  as  from  the  vital  force  of  an  acorn  dropped  into 
a  cleft  of  the  mountain,  will  spring  the  oak,  in  its  steady 


HISTORICAL   RESULTS.  379 

growth  rending  the  rocks  that  cramp  its  roots,  and  defy- 
ing the  whirlwinds  that  twist  and  strain  its  gnarled 
brandies. 

Until  within  the  last  half  century,  the  protective  policy 
has  ruled  the  industry  of  the  world.  Free  trade  has  had 
scarcely  a  chance  to  try  its  experiment.  Yet  its  princi- 
ples have  been  clearly  illustrated  and  sustained  in  the  hun- 
dred years'  history  of  our  nation's  independent  life.  The 
states  of  our  republic,  in  their  extent  of  territory,  their 
diversity  of  resources,  the  varied  races  and  endowments  of 
their  population  and  their  distinctive  interests,  constitute 
a  world  by  themselves.  Fortunately,  our  constitution  for- 
ever forbids  the  protective  policy  to  restrict  their  trade  with 
each  other.  A  broad  arena  is  thus  presented  for  the  ex- 
periment of  free  trade.  For  nearly  forty  years,  we  have 
watched  the  course  of  that  experiment  in  the  unfolding 
growth  of  the  young  state  of  Wisconsin.  Her  main  in- 
dustry was  at  the  first  and  must  long  continue  to  be  agri- 
culture. But  as  population  has  poured  in.  and  agriculture 
has  yielded  a  surplus  of  home-capital,  and  a  basis  of  credit 
has  been  laid  for  the  introduction  of  eastern  capital,  every 
kind  of  industry  suited  to  her  climate  and  conditions  has 
been  successfully  established.  Her  mines  have  been 
worked,  her  water-powers  have  bfen  utilized,  villages  and 
cities  have  sprung  up  spontaneously,  and  the  diverse  gen- 
ius and  taste  of  her  sons  have  found  at  home  ample  scope 
and  stimulus  for  profitable  exercise.  According  to  the 
theory  of  protection,  the  competition  of  New  England 
manufactures,  brought  in  freely  by  the  best  facilities  for 
transportation,  should  have  precluded  the  making  of  like 
products  here.  But  the  facts  are  all  against  the  theorv. 
We  have  seen  woolen  factories,  cotton  factories,  slice  fac- 
tories, watch  factories,  iron  works,  machine  shops,  paper 
mills,  establishments  for  making  agricultural  instruments, 
etc.,  all  started,  on  a  comparatively  small  scale  indeed,  but 


380  EXCHANGE. 

with  a  success  and  prosperity  that  promise  to  be  abiding 
and  expanding.  This  is  the  result  of  a  brief  but  fair  ex- 
periment of  the  principle  of  free  trade.  It  confirms  every 
phase  of  the  theory  and  shows  that  what  is  philosophically 
sound  and  true  is  also  practically  safe  and  wise. 


CHAPTER  XXIV. 

RAILWAY  CORPORATIONS. 

THE  operations  of  exchange  are  aided  by  all  facilities 
for  free  communication  and  for  the  transportation  of  per- 
sons and  goods  between  different  sections  of  a  country  and 
different  parts  of  the  world.  Steamships  and  ocean  tele- 
graphs have  changed  the  methods  of  foreign  commerce. 
Domestic  trade  and  industry  have  been  yet  more  affected 
by  the  modern  system  of  Railway  transportation.  The  pen 
of  an  eminent  jurist  has  set  forth  with  both  truth  and  elo- 
quence the  benefits  derived  from  this  means  of  swift  pas- 
sage. ''Railroads,"  says  Judge  Paine,  "are  the  great 
public  highways  of  the  world,  along  which  its  gigantic 
currents  of  trade  and  travel  continually  pour — highways 
compared  with  which  the  most  magnificent  highways  of 
antiquity  dwindle  into  insignificance.  They  are  the  most 
marvelous  invention  of  modern  times.  They  have  done 
more  to  develop  the  wealth  and  resources,  to  stimulate  the 
industry,  reward  the  labor  and  promote  the  general  com- 
fort and  prosperity  of  the  country,  than  any  other  or  per- 
haps all  other  mere  physical  causes  combined.  There  is 
probably  not  a  man,  woman  or  child,  whose  interest  and 
comfort  has  not  in  some  degree  been  subserved  by  them. 
They  bring  to  our  doors  the  productions  of  the  earth. 
They  enable  us  to  anticipate  and  protract  the .  seasons. 
They  enable  the  inhabitants  of  each  clime  to  enjoy  the 
pleasures  and  luxuries  of  all.  .  .  .  There  is  scarcely 
a  want,  wish  or  aspiration  of  the  human  heart  which  they 
do  not  in  some  measure  help  to  gratify." 


382  EXCHANGE. 

But  every  power  for  good  may  be  abused  and  perverted 
into  a  power  for  evil.  Experience  reveals  a  tendency  in 
great  railway  corporations  to  acquire  and  to  exercise  des- 
potic power,  in  a  way  to  obstruct  trade  and  to  bring  a 
blight  upon  productive  industry — a  power  which  sometimes 
aims  by  base  means  to  control  legislation,  and  sometimes 
attempts  to  defy  the  law.  Grave  and  complicated  prob- 
lems are  thus  presented  which  need  to  be  studied  in  the 
light  of  economic  principles.  Our  science  has  certainly 
something  to  contribute  towards  the  practical  solution  of 
these  problems. 

The  Nature  of  a  Rail-way  Corporation.  There 
are  to  be  recognized  three  distinctive  features. 

1.  Such  a  corporation  is  a  Creature  of  the  State.     It 
originates  in  a  legislative  act.     This  must  be  so  for  three 
reasons.     First,  because  it  is  peculiarly  a  function  of  the 
State  to  provide  highways  of  travel  and  trade  for  the  gen- 
eral benefit  of  its  people.     Second,  because  the  making  of 
such  highways  involves  an  interference  with  private  prop- 
erty which  can  be  warranted  only  by  the  authority  of  the 
State  in  the  exercise  of  its  sole  right  of  ''eminent  domain" 
for  a  public  advantage.      And   Third,  because  the   con- 
struction, equipment  and  operating  of  an  extended  railway 
is  an  operation  of  such  magnitude  as  to  require  the  capital 
and  energies  of  many  to  be  combined. 

2.  Such  a  corporation  is  an  Agent  of  the  State.     The 
considerations  just  named  would  justify  the  government 
of  a  State  in  taking  upon  itself  to  provide  and  manage 
railways  for  the  public  good.     Belgium  and   some  other 
European  states  do  thus  entrust  this  entire  interest  to  the 
direction  of  government  officials.     But  the  policy  of  our 
government  is,  in  accordance  with  the  economic  principles 
heretofore  presented,  to  enlist  private  enterprise  as  far  as 
practicable  in  all  undertakings  which  directly  concern  in- 


RAILWAY  CORPORATIONS.  383 

dnstry  and  trade.  Accordingly  in  the  legislative  act  which 
creates  a  railway  corporation,  the  government  does  two 
things.  First,  it  constitutes  of  a  number  of  associated 
individuals  an  artificial  person  with  a  distinctive  name,  to 
act  by  one  united  will,  capable  of  receiving,  holding  and 
conveying  property,  of  entering  into  contracts  and  incur- 
ring debts,  of  suing  and  being  sued.  The  body  corporate 
thus  formed,  is  in  the  eye  of  the  law,  a  civil  person  possess- 
ing certain  rights,  enjoying  certain  privileges  and  exercis- 
ing certain  functions  for  a  specific  object.  Second,  the 
government  transfers  to  this  body  corporate  certain  of  its 
own  sovereign  powers,  especially  that  of  eminent  domain, 
that  is  the  power  to  take  private  property  for  public  use 
on  making  due  compensation  to  the  owners  ;  and  charges 
it  with  the  fulfillment  of  its  own  legitimate  functions, 
namely,  providing  the  public  with  facilities  for  the  trans- 
portation of  persons  and  goods.  The  powers  are  granted 
with  reference  solely  to  the  function  contemplated.  A 
decision  of  the  United  States  Supreme  Court  declares  that 
"  building  a  railroad,  though  it  be  built  by  a  private  cor- 
poration, is  an  act  done  for  a  public  use,"  and  again  "  in 
their  very  nature  railroads  are  public  highways."  Chief 
Justice  Shaw,  of  Massachusetts,  says,  "  the  real  and  per- 
sonal property  necessary  to  the  establishment  and  manage- 
ment of  a  railroad  is  vested  in  the  corporation,  but  it  is  in 
trust  for  the  public."  It  is  therefore,  as  an  agent  of  the 
State,  that  a  railway  corporation  takes  land  from  its  citi- 
zens and  establishes  a  highway  of  intercourse  and  commerce 
for  the  public  service.  Hence  in  the  very  nature  of  the 
case,  its  powers  and  vested  rights  cannot  be  held  and  exer- 
cised independently  of  the  State.  The  government  is 
false  to  its  own  sacred  trusts,  if  it  does  not  hold  such  cor- 
porations ever  responsible  in  all  respects  for  their  conduct 
in  the  discharge  of  their  proper  functions. 

3.  A  railway  corporation  is  in  some  degree  a  practical 


384  EXCHANGE. 

Monopoly.  The  private  enterprise  which  undertakes,  as 
an  agent  of  the  State  to  perform  the  service  named,  is  en- 
titled to  a  just  compensation.  The  members  of  the  com- 
pany invest  their  capital  for  expected  profits.  Their  pri- 
vate interests  are  to  be  carefully  conserved.  The  corpora- 
tion gets  its  compensation  by  collecting  fares  and  freight 
charges  for  the  actual  transportation  of  persons  and  goods. 
That  is,  as  an  offset  for  the  service  rendered,  the  govern- 
ment allows  a  private  company  to  tax  the  public  who  have 
the  benefits  of  that  service.  But  after  a  railway  is  once 
established,  it  controls  the  business  of  transportation  for 
the  section  through  which  it  runs.  The  only  competition 
possible  is  that  of  parallel  railways  or  water  transportation. 
Hence  the  arrangement  itself  gives  to  the  corporation  a 
practical  monopoly  with  the  power  of  taxing  the  com- 
munity. 

This  is  probably  the  best  way  of  making  remuneration 
for  the  service.  If  the  government  performed  the  same 
service  by  a  bureau  of  its  own  appointed  officers,  it  would 
tax  the  community  in  the  same  way.  There  is  no  just 
ground  for  complaint  of  this  monopoly  as  a  method  of  pay- 
ing for  a  valuable  service  ;  nor  of  its  legitimate  exercise  to 
secure  generous  returns  for  capital  and  labor  employed. 
But  it  is  evidently  liable  to  abuse.  The  government  has 
need  therefore,  to  subject  the  business  to  reasonable  condi- 
tions and  to  retain  such  power  over  it  as  to  guard  the  pub- 
lic against  oppression.  Mr.  Mill  very  fitly  says,  "  the 
State  should  either  reserve  to  itself  a  reversionary  property 
in  such  public  works,  or  should  retain  and  freely  exercise 
the  right  of  fixing  a  maximum  of  fares  and  charges  and 
from  time  to  time  varying  that  maximum." 

While  railway  corporations  are  creatures  of  the  State, 
called  into  being  to  serve  as  agents  of  the  State  for  the 
accomplishment  of  certain  purposes,  they  are  also  to  be 
regarded  as  parties  to  contracts  with  the  State,  entitled  to 


RAILWAY   CORPORATIONS.  385 

just  reward  for  their  services,  and  having  private  rights 
and  interests  always  to  be  respected  and  guarded.  On 
the  part  of  the  State,  the  object  distinctly  contemplated 
is  to  develop  the  material  prosperity  of  the  people.  On 
the  part  of  each  corporation,  the  object  never  lost  sight  of 
is  to  realize  a  profit  for  the  capital  and  labor  which  it  em- 
ploys. These  two  objects  are  not  necessarily  opposed  to 
each  other.  On  the  contrary,  each  is  best  promoted  when 
qualified  by  respect  for  the  other.  This  will  appear  more 
clearly  as  we  study  next, 

The  Relations  of  Railway  Corporations  to 
general  Industry. 

1.  By  transportation,   they  give  to  all   products  that 
last  addition  of  value  which  comes  from  their  being  in  the 
places  where  they  are  most  needed.     They  directly  perform 
a  kind  of  labor  essential  to  the  increase  of  wealth.     The 
importance  of  this  labor  cannot  be  over-estimated.     It  links 
itself  with  every  other  kind  of  labor  and  is  necessary  to  de- 
velop the  full  results  of  all  industry. 

2.  They  enlarge  the  market  for  all  products,  and  so 
help  to  maintain  the  natural  equilibrium  of  supply  and 
demand.     They  bear  away  the  surplus  productions  of  one 
section  to  meet  the  deficiencies  of  another,  to  the  relief  of 
both  ;  and  the  industry  of  both  is  thereby  stimulated. 

3.  They  quicken  exchanges  and  thus  hasten  the  returns 
from  both  capital  and  labor.     Hence  they  tend  to  reduce 
prices,  and  at  the  same  time  to  make  them  more  remun- 
erative. 

4.  The  business  of  the  railways  depends  upon  the  pro- 
ductiveness of  industry.     The  demand  for  transportation 
is  proportioned  to  the  amount  of  products  to  be  carried 
out  of  a  country.     We  have  seen  that  the  ability  of  a  peo- 
ple to  trade  depends  on  the  surplus  of  goods  they  have  to 
dispose  of.     That  which  goes  out  must  pay  for  what  is 

17 


386  EXCHANGE. 

brought  in.  Hence  the  bountiful  crops  which  reward  the 
labor  of  agriculture,  large  proceeds  from  the  mines,  the 
success  of  all  manufacturing  industry,  all  subserve  the 
profits  of  the  railways.  So  too,  the  use  of  railways  for 
travel  depends  on  the  increase  of  individual  wealth.  It  is 
for  the  interest  of  these  corporations  that  all  whom  they 
serve  should  grow  rich.  It  is  better  for  themselves  and 
for  all  concerned  that  their  profits  should  be  increased  by 
enlargement  of  business  rather  than  by  increasing  the  rates 
of  charges.  It  is  both  right  and  politic  for  railways  to 
favor  the  prosperity  of  industry  all  along  their  routes,  in 
all  intermediate  places,  as  well  as  at  the  extremities. 

5.  By  abuse  of  their  power  as  monopolies,  the  railway 
corporations  may  diminish  the  returns  of  all  industry. 
They  may  set  their  rates  so  high  as  virtually  to  deprive 
producers  of  the  advantage  of  an  enlarged  market.  Thus 
the  railway  charges  for  transporting  the  agricultural  pro- 
ducts of  the  West  to  the  sea-board  sometimes  absorb  all 
the  difference  in  prices.  When  increased  demand  abroad 
has  raised  the  price  of  wheat  in  the  foreign  market,  the 
railways  have  been  known  to  increase  their  charges  so  as 
to  cover  all  the  advance,  and  rob  the  Western  farmer  of 
his  share  in  the  advantage.  Such  a  course  must  be  de- 
pressing to  industry.  It  is  possible  in  the  relations  of  the 
parties,  but  it  is  a  violation  of  mutual  rights  in  these  re- 
lations. Harmony  and  co-operation  characterize  the  true 
relation  of  railways  to  all  other  departments  of  productive 
industry.  It  is  a  foolish  short- sigh  ted  policy  which,  for  a 
temporary  advantage,  disregards  this  fundamental  truth. 

The  Administration  of  Railway  Corporations. 

The  construction  and  operations  of  railways  require  great 
outlays  for  which  large  accumulations  of  capital  are  neces- 
sary. This  capital  is  in  part  gathered  by  subscriptions  for 
stock ;  in  part,  it  is  obtained  by  the  use  of  credit.  The 


ABUSES   FROM    RAILWAY    MANAGERS.  387 

original  corporators  pledge  themselves  for  certain  shares. 
Then  the  public  and  especially  the  people  along  the  pro- 
posed route  are  called  to  add  their  subscriptions.  The  call 
is  urged  by  pleading  the  benefit  to  be  derived  from  the 
road,  and  by  the  promise  of  profits  to  stockholders.  In 
many  cases,  farmers  and  other  citizens,  unable  to  advance 
money,  have  been  induced  to  give  their  credit  by  mortgag- 
ing their  farms  and  homesteads.  Cities,  towns  and  coun- 
ties also  have  been  persuaded  to  tax  themselves,  or  to  lend 
their  credit  in  the  form  of  bonds  for  the  benefit  of  the 
road.  The  stock  is  then  widely  distributed  to  great  num- 
bers of  persons.  The  corporation  is  composed  of  all  stock- 
holders. Such  a  body  is  manifestly  unfitted  for  the  details 
of  business.  The  corporation  is  therefore  organized  by  the 
election  of  a  Board  of  Directors  which  may  be  continued 
or  changed  at  each  annual  meeting  of  stockholders.  To 
this  Board  is  entrusted  the  choice  of  officers  and  the  gen- 
eral administration  of  the  company's  affairs.  A  mighty 
power  is  thus  concentrated  in  the  hands  of  a  few  managers. 
Since  at  meetings  of  stockholders,  votes  on  all  questions 
are  taken  by  count  of  shares,  absentees  voting  by  proxy,  it 
is  not  difficult  for  the  managers,  by  commanding  a  major- 
ity of  the  shares,  to  control  action  and  retain  their  power. 
The  minority  are  helpless  to  resist  this  power.  The  di- 
rectors may  be  true  and  faithful  to  the  interests  of  tho 
corporation  and  of  the  public,  so  that  all  shall  be  well  ad- 
ministered. They  may  use  their  power  to  subserve  inter- 
ests of  their  own,  antagonistic  to  both. 

Great  abuses  proceed  from  the  selfish  policy  and  ruin- 
ous administration  of  railway  managers.  By  lavish  expen- 
diture, and  the  reckless  use  of  credit,  the  entire  property 
and  franchises  of  many  railways  have  passed  under  fore- 
closure of  mortgages  into  the  hands  of  bondholders.  In- 
dividual stockholders  thus  lose  all  thev  had  invested  in  the 


388  EXCHANGE. 

enterprise.  Worse  than  that,  many  an  humble  citizen  or 
farmer  has  to  give  up  his  homestead  or  farm,  or  struggle 
for  years  to  clear  it  from  the  mortgage  given  for  his  stock, 
with  nothing  to  offset  his  loss. 

The  interests  of  minor  stockholders  are  often  sacrificed 
in  another  way,  which  can  best  be  explained  by  an  actual 
instance.  The  B.  &  C.  railway  was  doing  a  prosperous 
business,  which  paid  handsome  dividends  and  commanded 
for  its  stock  a  premium  in  the  market.  The  B.  &  D.  rail- 
way, running  out  of  the  same  city  in  another  direction,  was 
much  embarrassed  so  that  it  yielded  no  profits,  and  its 
stock  was  almost  worthless.  The  managers  of  the  B.  &  C. 
in  concert  with  some  others,  bought  up  at  very  low  rates, 
the  greater  part  of  the  B.  &  D.  stock,  and  then  using,  or 
rather  misusing  the  power  of  their  official  position,  merged 
the  stock  of  the  good  road  in  that  of  the  other.  The  con- 
sequence was  that  the  B.  &  D.  stock  rose  at  once  to  seven- 
fold its  former  value,  the  advantage  of  which  inured  to 
the  benefit  of  its  shrewd  managers  and  their  friends,  while 
hundreds  of  innocent  holders  of  the  B.  &  C.  stock  saw 
their  dividends  cut  off  and  their  property  reduced  in  value 
one-half,  by  the  treacherous  act  which  they  had  no  power 
to  resist  and  for  the  wrong  of  which  they  had  no  redress. 

Again  we  have  cases  like  that  of  the  "Credit  Mobilier" 
on  the  Union  Pacific  railway,  in  which  some  of  the  man- 
agers as  individuals  were  organized  into  a  distinct  com- 
pany to  contract  for  building  the  road.  As  managers, 
they  let  to  themselves,  in  the  above  capacity,  contracts  at 
such  rates  as  made  them  rich,  but  tended  to  impov- 
erish the  corporation  of  which  they  were  the  official  guar- 
dians. 

Not  unfrequently  railway  directors  operate  on  a  large 
scale,  in  the  speculations  of  the  stock  exchange,  and  manip- 
ulate the  affairs  of  their  own  corporations  so  as  to  raise 
or  depress  prices  as  may  best  suit  their  own  advantage, 


MONET-POWER    OF    RAILWAY    rOUrOHATIOXS.        389 

utterly  regardless  of  the  effects  on  public  interests  or  on 
those  whose  capital  is  entrusted  to  their  care. 

The  process  of  "  watering  stock"  so-called,  in  like  man- 
ner sacrifices  public  interests  to  the  selfish  greed  of  railway 
officials.  Its  effect  is  to  lay  on  the  public  extra  charges 
that  dividends  may  be  paid  on  double  the  amount  of  stock 
actually  paid  in. 

Sometimes  the  officers  of  a  railway  engage  in  the  traffic 
of  commerce  and  change  the  rates*  of  freights  to  suit  their 
own  advantage.  Then  by  alternate  ruinous  competitions 
and  grand  combinations  they  throw  uncertainty  over  all 
the  transactions  of  trade,  causing  fluctuations  by  which 
many  are  made  bankrupt  while  a  few  of  the  inside  ring 
are  enriched. 

Worst  of  all,  is  the  abuse  of  the  great  money-power  of 
these  corporations  to  carry  measures  of  legislation  for  their 
own  interests  to  the  detriment  of  the  public  weal.  The 
modest  expression,  ''putting  money,  bonds  or  stocks  where 
they  will  do  the  most  good,"  means  in  plain  speech,  bribing 
Congressmen  of  weak  consciences  and  buying  up  State 
legislatures. 

In  speaking  of  these  things,  we  have  no  sympathy  with 
the  indiscriminate  tirade  against  these  corporations,  in 
which  some  indulge.  We  do  not  charge  them  as  sinners 
above  all  others  in  these  respects.  Express  companies, 
telegraph  companies,  insurance  companies  and  other  great 
monied  corporations  indicate  more  or  less  the  same  vicious 
tendencies.  We  advocate  no  blind  -''granger"  movement 
of  open  hostility.  On  the  other  hand,  we  hold  in  highest 
estimation  the  benefits  conferred  on  the  country  by  these 
corporations.  We  count  worthy  of  all  honor  many  men  of 
highest  integrity  connected  officially  with  them,  who  stand 
manfully  for  the  correction  of  abuses  and  the  just  fulfill- 
ment of  their  trusts. 

But  a  clear  apprehension  and  consideration  on  the  part 


390  .  EXCHANGE. 

of  our  intelligent  citizens  generally,  in  the  light  of  both 
economic  and  moral  principles,  of  the  evil  as  well  as  the 
good  involved,  will  work  out  the  surest  corrective  of  the 
evil  and  the  truest  safeguard  of  the  good.  Grave  ques- 
tions of  legislation  are  before  the  country  on  which  the 
people  as  well  as  their  law-makers  need  to  have  an  intelli- 
gent judgment.  How  shall  the  rights  of  innocent  stock- 
holders be  guarded  against  the  machinations  of  unscrupu- 
lous managers  ?  How  shall  these  corporations  be  protected 
in  their  just  private  rights,  and  yet  be  held  under  restric- 
tions and  responsibilities  which  will  keep  them  true  and 
faithful  in  their  legitimate  functions  as  agents  of  the 
State  for  great  public  interests  ?  Shall  all  be  left  to  the 
separate  and  varying  action  of  the  several  States,  or  shall 
the  national  Congress  exercise  its  constitutional  power 
to  regulate  commerce  between  the  States,  by  enactments 
which  shall  be  uniform  and  authoritative  over  the  whole 
country  ?  The  wisest  and  profoundest  statesmanship  in 
the  land  is  needed  for  the  solution  of  these  problems. 

But  back  of  all  legislation,  more  effective  than  all  stat- 
utes, is  the  sound  public  sentiment,  formed  and  guided  by 
a  good  conscience  on  the  part  of  the  body  of  our  people — 
a  sentiment  which  rests  on  an  intelligent  regard  for  the 
fundamental  principles  of  Political  Economy  in  this  as  in 
other  applications — a  conscience  which  holds  individual 
conduct  to  the  ways  of  justice  and  honor,  and  which  ex- 
presses itself,  through  all  channels  of  social  intercourse 
and  popular  influence,  in  condemnation  of  treachery, 
fraud  and  robbery,  however  subtle  and  shrewd  the  pro- 
cesses, however  grand  the  scale  of  operations,  however 
rich  the  results  of  successful  wickedness. 


CHAPTER  XXV. 

COMMERCIAL  CRISES. 

Speculation  is  tlie  prime  cause  of  commercial  crises. 
In  its  first  and  best  sense,  this  word  is  but  a  name  for  the 
foresight  and  mutual  confidence  which  are  indispensable  in 
all  operations  of  exchange.  It  has  a  bad  odor  only  because 
of  its  abuse.  Mr.  McCulloch  says  "Every  transaction  in 
which  produce  is  bought  that  it  may  be  afterward  sold  ia 
in  fact  a  speculation."  A  merchant's  business  is  to  study 
the  market  so  as  to  buy  goods  with  a  well-founded  antici- 
pation of  selling  them  at  a  profit.  His  success  must  de- 
pend on  the  clearness  of  his  foresight  and  the  good  judg- 
ment and  energy  of  his  action.  Credit  too  must  enter 
more  or  less  into  both  the  buying  and  the  selling.  As  the 
anticipations  of  profit  grow  bright  and  strong,  the  mer- 
chant is  prompted  to  exert  his  purchasing  power  to  the 
utmost  extent  of  both  his  capital  and  his  credit.  As  one 
does  this,  others  catch  the  impulse  and  the  spirit  of  specu- 
lation pervades  the  whole  community,  stimulating  all  de- 
partments of  business  to  unwonted  activity.  Kept  within 
proper  limits,  such  a  movement  is  healthful  and  safe.  The 
trouble  is  that  unwittingly,-  individuals  pass  the  limit  of 
safety  and  are  borne  on  by  forces  of  which  they  are  not 
sensible,  till  over-production,  over-importation  and  the 
excessive  extension  of  credit  bring  on  a  sudden  revulsion. 

When  for  whatever  reason,  prices  are  subject  to  consid- 
erable fluctuations,  especially  if  they  are  connected  with 
an  unstable  currency,  there  springs  up  what  Adam  Smith 
calls  "the  trade  of  speculation."  This  is  a  species  of  gam- 


392  EXCHANGE. 

lling.  A  class  of  men  devote  themselves  to  the  study  of 
fluctuations,  with  a  view  not  to  actual  trade,  but  to  betting 
on  the  rise  or  fall  of  prices.  At  the  Chicago  corn  exchange, 
for  instance,  two  men  enter  into  a  contract,  the  one  to  de- 
liver and  the  other  to  receive  ten  thousand  bushels  of  wheat, 
after  thirty  days,  at  a  certain  price ;  the  one  presuming 
that  the  market  price  will  decline  before  the  day  of  delivery 
comes,  the  other  that  it  will  rise.  The  thought  of  an  ac- 
tual transfer  of  the  wheat  does  not  enter  the  mind  of 
either.  The  transaction  is  a  mere  bet  on  the  future  price, 
and  when  the  time  matures,  it  is  closed  by  the  loser's  pay- 
ing the  difference  between  the  market  price  and  the  price 
named  in  the  contract.  Such  men  throng  the  stock-board, 
the  gold  room,  the  corn  exchange,  the  cotton  market,  the 
wool  market.  This,  like  all  other  gambling,  has  its  tricks, 
its  artificial  appliances  to  affect  prices.  The  "  lulls  "  use  all 
means  possible  to  raise  the  market  price,  and  the  "bears" 
Jabor  unscrupulously  to  depress  it.  These  operations  al- 
ways aggravate  the  rising  fever  of  speculation  in  the  com- 
munity. Men  grow  impatient  of  the  "slow  and  sure" 
gains  of  regular  trade,  and  are  dazzled,  like  those  who 
dabble  in  lotteries,  by  the  vision  of  sudden  fortunes. 

A  Panic  is  the  turning-point  when  the  revulsion  oc- 
curs;  when  baseless  anticipations  are  disappointed  and 
mutual  confidence  suddenly  gives  place  to  general  distrust. 
When  men  have  entrusted  their  property  to  the  care  of 
others,  whatever  comes  suddenly  to  shake  their  confidence 
may  produce  a  panic. 

An  individual  or  a  corporation  may  thus  be  suddenly 
overwhelmed  with  no  just  cause.  This  was  illustrated  in 
the  case  of  the  National  Gold  Bank  and  Trust  Company 
of  San  Francisco,  in  1875.  Just  after  a  careful  investiga- 
tion had  shown  the  company  to  have  assets  amounting  to 
$1,300,000  in  excess  of  all  liabilities,  a  check  for  $4000  was 


PANICS.  303 

presented  and  payment  was  deferred  in  order  that  some 
irregularity  in  the  form  of  the  check  might  be  corrected. 
Thereupon  the  holder  of  the  check  industriously  circulated 
the  statement  that  the  bank  could  not  pay  a  four  thousand 
dollar  check.  This  started  a  panic.  The  depositors  rushed 
in  to  draw  out  their  funds.  After  paying  half  a  million, 
the  bank  was  compelled  to  close  its  doors  and  go  into  liqui- 
dation. 

Sometimes  the  undue  expansion  of  credit  for  purposes 
of  speculation  in  a  single  branch  of  trade,  brings  on  a 
panic  and  collapse.  Mr.  Tooke  states  a  case  which  shows 
how  credit  in  the  simple  form  of  book  accounts  may  be 
expanded  and  lead  to  this  result.  In  1839,  difficulties  be- 
tween England  and  China  threatened  war.  Anticipating 
a  suspension  of  the  importation  of  tea,  certain  dealers  in 
that  article  hastened  to  buy  up  the  stock  in  the  market 
that  they  might  secure  a  greater  profit  on  account  of  the 
expected  scarcity.  This  action  itself  disturbed  the  market 
as  it  was,  and  the  price  of  tea  rose  rapidly  till  it  was  ad- 
vanced one  hundred  per  cent.  The  anticipations  seemed 
thus  to  be  realized.  One  dealer  whose  capital  did  not  ex- 
ceed £1200,  and  that  locked  up  in  his  business,  pushing  his 
credit  to  the  utmost,  was  able  to  purchase  four  thousand 
chests  valued  at  £80.000.  But  the  enhanced  price  of  the 
article  diminished  consumption,  and  by  indirect  importa- 
tion, there  came  an  unlocked  for  supply.  The  speculation 
failed.  Those  who  had  freely  given  credit  to  the  specula- 
ting dealers  were  thrown  into  a  panic  which  precipitated 
the  crisis  and  aggravated  the  disaster  to  all  concerned. 

The  balance  of  men's  judgment  is  apt  to  be  disturbed 
by  extraordinary  profits  from  any  production,  and  they 
are  tempted  to  push  their  credit  beyond  safe  bounds.  With 
increased  income,  they  adopt  a  more  luxurious  style  of 
living.  At  the  same  time,  they  make  large  outlays  to 
extend  what  seems  a  profitable  business.  Such  signs  of 


394  EXCHANGE. 

prosperity  make  it  easy  to  borrow,  for  the  excitement 
affects  lenders  also.  Thus  out  of  a  real  fact,  imagination 
creates  an  illusion  and  all  parties  are  led  by  a  "  Will  o'  the 
wisp  "away  from  solid  ground.  Suddenly  the  deceptive 
light  goes  out,  and  lost  in  the  swamp,  each  in  the  panic 
of  the  hour,  trying  to  save  himself,  pulls  his  fellow  down. 
Thus,  a  few  years  ago,  thrifty  farmers  of  the  Connecticut 
River  Valley  realized  great  profits  from  the  culture  of  to- 
bacco. The  sudden  gains  turned  their  heads.  From  their 
old  frugal  ways  they  ran  into  extravagance  in  living.  To 
increase  future  profits,  more  fields  were  plowed,  costly  fer- 
tilizers were  applied  and  expensive  help  was  employed. 
The  merchants  and  the  banks  freely  gave  credit  to  the 
prosperous  farmers.  All  promised  well,  till  through  some 
freak  of  speculators  in  the  market,  prices  declined.  Then 
the  crisis  came  and  the  gathered  crop  was  hardly  sufficient 
for  a  tithe  of  the  debts  for  which  it  had  been  pledged. 
Under  the  panic,  real  wealth  was  sacrificed  by  forced  sales, 
and  men  of  integrity  and  means,  who  with  time  to  turn 
what  they  had,  could  have  met  all  liabilities,  went  down 
with  weak  and  reckless  adventurers. 

Often  a  combination  of  such  influences  affects  the  busi- 
ness of  d  whole  country  through  a  general  expansion  of 
credit  and  bold  speculation.  The  movement  ordinarily 
starts  with  some  real  occasion.  There  may  be  on  the  one 
side,  capital  accumulated  but  unemployed,  and  on  the 
other,  rich  resources  of  wealth  which  labor  is  waiting  to 
develop.  It  is  the  legitimate  office  of  credit  to  unite  these 
two  elements  of  production.  In  such  circumstances, 
their  union  yields  extraordinary  profits,  and  great  ex- 
pectations draw  out  credit  indefinitely.  Under  this  un- 
wonted stimulus  to  every  department  of  business,  the 
whole  community  becomes  infected  with  a  mania  of  specu- 
lation. Credit  starting  from  solid  ground,  pushes  out  its 
structure  unsupported  over  a  yawning  chasm,  till  it  is 


THE  CRISIS   OF    183?.  395 

ready  to  break  by  its  own  weight.  Then  whatever  inci- 
dent comes  to  test  it,  reveals  its  weakness.  The  first  crack 
of  the  framework  sends  out  a  report  which  starts  a  panic 
and  the  crash  is  inevitable. 

All  this  is  well  illustrated  by  facts  of  the  commercial 
revulsion  of  1837.  During  the  earlier  part  of  the  preced- 
ing decade  of  years,  all  branches  of  business  were  highly 
prospered.  Railways  and  steam  navigation  on  the  lakes 
made  an  easy  way  for  domestic  and  foreign  emigration  to 
go  and  develop  the  rich  resources  of  our  Western  lands. 
This  gave  a  healthy  stimulus  to  the  productive  industry 
and  commercial  enterprise  of  the  older  States.  By  credit, 
unemployed  capital  was  drawn  into  use  and  labor  was  in 
great  demand.  Interest,  wages  and  the  prices  of  goods 
rose  together  and  all  over  the  country,  men  were  really 
growing  rich.  But  they  were  not  content  with  the  old 
slow  and  sure  progress.  All  foresaw  that  the  cheap  lands 
of  the  West  must  be  rapidly  enhanced  in  value.  This 
promise  of  the  future,  working  on  the  imagination,  started 
a  fever  of  speculation  which  spread  like  an  epidemic.  It 
was  fed  on  credit  universally  extended.  This  extraordinary 
stimulus  was  intensified  by  political  action  connected  with 
the  suppression  of  the  United  States  Bank.  The  transfer 
of  the  government  deposits  to  State  banks  and  the  distri- 
bution of  the  nation's  surplus  revenue  among  the  States 
led  to  a  great  increase  of  the  paper  currency  and  to  a 
free  extension  of  credit  for  all  sorts  of  enterprises.  In  the 
West,  to  supply  the  lack  of  money,  "wild-cat"'  banks 
were  established  and  issued  their  baseless  circulating  notes 
in  profusion.  Goods  and  lands  and  city  lots  were  ex- 
changed for  small  payments  of  money  —  itself  resting 
mainly  on  credit — and  a  large  balance  of  credit  on  long 
time. 

Thus  during  the  years  1835-6,  the  bubble  of  speculation 
was  inflated  to  its  utmost  dimensions  by  the  expansion  of 


396  EXCHANGE. 

credit  in  every  form.  In  the  beginning  of  the  year  183? 
there  were  in  the  country  634  banks,  with  less  than  $38,- 
000,000  in  specie  issuing  $150,000,000  of  notes  and  dis- 
counting $525,000.000  of  paper.  Individual  credit  was 
proportionally  extended.  The  wildest  speculation  was  en- 
gaged with  Western  lands  and  city  lots.  Not  only  the  bold 
pioneers  of  the  frontier  but  thousands  of  sober  Eastern 
people  were  drawn  into  hazardous  ventures.  The  site  of 
Milwaukee  was  opened  to  white  settlers  in  1835-6.  Its 
advantages  were  quickly  discerned,  and  adventurers  has- 
tened thither  by  hundreds.  A  city  was  laid  out,  and  the 
prices  of  lots  doubled  every  few  weeks.  Men  who  came 
•with  nothing  soon  counted  their  wealth  by  thousands. 
But  sales  were  made  almost  entirely  on  credit,  and  the 
quickly  made  fortunes  really  consisted  of  piles  of  promis- 
sory notes,  or  of  figures  doubled  in  the  inventory  of  lots, 
whose  estimated  value  could  be  realized  only  by  the  city's 
growth  for  twenty  years.  Yet  nobody  perceived  the  illu- 
sion ;  the  dream  seemed  reality  for  the  time.  Even  the 
honest  French  trader,  the  original  owner  of  the  site,  who 
was  paid  a  substantial  compensation  for  his  title,  embarked 
his  little  fortune  again  on  the  sea  of  speculation  to  be  lost 
forever.  Similar  transactions  were  going  on  in  hundreds 
of  other  places. 

At  the  same  time,  in  the  East,  ideal  fortunes  suddenly 
acquired,  prompted  extravagance  in  dress  and  living  which 
caused  large  importations  of  foreign  goods.  The  real 
wealth  of  the  country  must  go  out  to  pay  for  these,  es- 
pecially the  gold  and  silver ;  for  credit  currency  never  goes 
abroad.  The  way  was  thus  prepared  for  a  sudden  and  dis- 
astrous collapse.  Its  immediate  cause  was,  strange  to 
say,  the  unusually  large  crop  of  cotton  in  1836.  Southern 
merchants  and  brokers  had  given  the  planters  credit  in  the 
expectation  that  previous  high  prices  would  continue.  But 
the  price  in  the  foreign  market  declined.  The  planters 


THE   PROBLEM    OF   COMMERCIAL   CRISES.  39? 

could  not  make  good  the  difference,  hence  the  cotton  fac- 
tors could  not  meet  their  obligations  to  their  New  York 
correspondents,  and  their  paper  was  dishonored  at  tho 
banks.  These  failures  created  distrust,  the  panic  followed 
and  the  bubble  burst.  Prices  suddenly  fell,  banks  sus- 
pended, business  stopped  and  the  financial  chaos  with  its 
attendant  stagnation  and  "distress  was  universal,  and  con- 
tinued for  several  years. 

Such,  with  manifold  slight  variations,  is  the  ordinary 
course  of  things  in  a  general  commercial  crisis.  The  real 
mischief  is  done  in  the  earlier  stages,  when  all  goes  on  so 
well  that  nobody  thinks  of  danger.  The  panic  is  inev- 
itable as  soon  as  men"  begin  to  see  on  what  a  slender  base 
they  have  been  building  their  hopes  and  working  out  their 
schemes.  The  lessons  of  sad  experience  are,  however,  very 
soon  forgotten,  and  these  phenomena  recur  quite  regularly 
in  smaller  and  larger  cycles  of  ten  and  twenty  years. 

The  practical  problem  is  how  to  preserve  and  perpetu- 
ate the  balance  between  confidence  and  caution — how  to  give 
scope  for  the  use  of  credit  with  proper  checks  against  its 
abuse.  Legislation  may  be  called  on  to  establish  a  stable 
currency  and  then  to  keep  it  stable  by  letting  it  alone  ;  also 
to  provide  equitable  laws  for  defining  and  enforcing  con- 
tracts, and  then  to  maintain  these  laws  with  the  least  va- 
riation possible.  As  the  chief  means  for  avoiding  the  re- 
currence of  these  fearful  convulsions,  we  must  have  a 
more  thorough  incorporation  into  the  usages  of  business, 
of  the  simple  principles  of  Political  Economy.  As  of 
special  importance  in  their  bearing  on  this  problem,  we 
reiterate  the  following  : 

1.  The  natural  standard  of  value  and  price  for  all  arti- 
cles is  the  cost  of  production  including  a  fair  profit. 

2.  Though  the  alternations  of  supply  and  demand  pro- 
duce more  or  less  of  temporary  variation,  there  is  a  natural 


398  EXCHANGE. 

tendency  to  an  equilibrium  of  prices  on  this  constant  basis 
of  cost.  t 

3.  Stable  and  healthy  prosperity  of  business  depends  on 
maintaining  this  equilibrium  generally ;  but  mischievous 
speculation  aims  always  to  disturb  it. 

4.  The  true  functions  of  credit  are  to  bring  accumulated 
capital  into  productive  union  with  labor,  and  to  facilitate 
exchanges  by  bridging  over  gaps  of  time  and  distance. 

5.  When  men  purchase  with  credit,  they  draw  upon  a 
fund  which  has  no  definable  limit.     High  hopes  impel 
men  to  extend  their  purchasing  power  to  the  utmost  by 
adding  to  their  ready  money  all  the  credit  they  can  com- 
mand.    This  is  the  point  of  danger. 

6.  This  element  in  the  market  disturbs  the  equilibrium 
of  prices  without  respect  to  the  true  standard ;  an  artifi- 
cial demand  is  created  which  finds  no  check  because  ad- 
vancing prices  and  profits  apparently  increased,  seem  to 
warrant  the  further  expansion  of  credit. 

7.  Hence  comes  that  "excess  of  speculative  purchases" 
which  Mr.  Mill  calls  the  prime  cause  of  a  commercial  crisis, 
and  which  leads  to  the  sudden  recoil  of  prices  and  the  con- 
sequent collapse. 

8.  The  panic  which  follows  is  as  rash  and  unreasoning 
as  was  the  confidence  which  blew  the  bubble,  and  precludes 
the  application  then,  of  any  effectual  relief. 

9.  The  necessity  of  turning  all  kinds  of  property  into 
money  to  meet  indebtedness,  fills  the  market  with  sellers, 
while  few  are  ready  to  buy,  and  prices  sink  as  far  below 
the  standard  as  they  were  previously  raised  above  it. 

10.  Then  production  must  be  suspended  and  business 
stand  still,  till  adjustments  are  made  and  the  basis  is  laid 
for  starting  again  by  the  true  standard,  with  mutual  con- 
fidence qualified  and  restored. 

At  this  date,  1878.  the  financial  condition  of  the  whole 


A    WORLD-WIDE   CRISIS.  399 

civilized  world  is  and  has  been  for  three  years,  such  as  was 
probably  never  known  before.  Heretofore,  separate  nations 
have  had  their  commercial  crises  from  time  to  time,  trace- 
able to  peculiar  local  causes.  Now  all  civilized  nations 
seem  to  be  brought  at  once  and  together  into  this  condi- 
tion. Each  country  shows  some  symptoms  peculiar  to  it- 
self, but  in  its  general  features,  the  distemper  is  one  and 
the  same  everywhere.  Suspended  production,  stagnation  of 
trade,  general  distrust,  bankruptcies,  defalcations,  strikes, 
idleness  and  distress  of  workingmen  are  reported  from 
every  quarter.  We  cannot  pretend  to  offer  a  full  explana- 
tion of  the  case,  much  less  to  prescribe  a  certain  remedy. 
Some  things  are  apparent,  however,  which  have  contrib- 
uted to  this  result,  and  may  be  concisely  stated. 

First.  Within  the  last  sixty  years,  the  invention  and 
introduction  of  labor-saving  machinery  has  changed  the 
methods  and  greatly  increased  the  results  of  productive 
industry.  The  wealth  thus  produced  is  not  at  all  in  ex- 
cess of  the  needs  of  men,  but  the  problem  of  its  wise  dis- 
tribution to  meet  those  needs  is  not  yet  solved. 

Second.  The  use  of  expensive  machinery  for  manufac- 
tures and  of  steam  for  transportation,  requires  that  every 
kind  of  business  be  conducted  on  a  large  scale,  with  large 
capital,  and  in  large  establishments.  Hence  a  necessary 
expansion  of  credit  and  greater  risks,  both  tending  to  in- 
crease the  speculative  character  of  business. 

Third.  This  large  way  of  doing  things,  in  connection 
with  the  multiplied  conveniences,  comforts  and  luxuries 
of  living,  has  induced  a  sudden  increase  of  extravagance 
quite  universal,  in  the  habits  both  of  business  and  of  do- 
mestic life. 

Fourth.  Steam  navigation,  railways  and  telegraphs  now 
hold  all  nations  in  such  close  commercial  intercourse,  that 
when  one  suffers  all  must  suffer  with.  it. 

Fifth.    Wars  now  produce  much  more  disturbance  of 


400  EXCHANGE, 

general  commerce  than  formerly.  They  are  also  vastly  more 
expensive,  and  leading  to  the  extension  of  national  credit, 
they  work  a  yet  greater  disturbance  of  the  world's  finances. 

Sixth.  Within  the  last  twenty  years  have  occurred 
two  wars — that  of  the  Rebellion  in  the  United  States  and 
the  Franco-German  war  in  Europe — both  affecting  very 
closely  the  vital  centres  of  the  world's  industry  and  com- 
merce. 

These  causes,  many  of  them  working  silently  and  un- 
noticed for  years,  seem  to  have  gathered  to  a  head  in  these 
passing  years,  with  such  sad  results  as  have  been  noticed. 
We  cherish  the  fond  hope  that  out  of  the  present  evil  will 
come  a  greater  good,  in  the  better  apprehension  of  the  true 
brotherhood  of  nations,  of  the  fundamental  principles  of 
Political  Economy  and  of  the  application  of  these  princi- 
ples both  in  minute  details  and  in  broad  generalizations, 
to  human  industry  and  trade  the  world  over. 


THE    END. 


INDEX 


ADAH  Smith's  Maxims  on  Taxation,  248. 

Afflicted  Classes,  expenditures  for,  147. 

Agriculture,  a  healthful  employment, 
31;  rent  of  lands  for,  202;  chief 
industry  of  Western  States,  379. 

Agricultural  products,  home  market 
for,  368. 

Amsterdam,  Bank  of,  333. 

Artists,  compensation  of,  187. 

Authors,  compensation  of,  188. 

B. 

BANKS,  origin  of  name,  329;  agents  of 
credit,  329;  offices  of,  329;  histori- 
cal facts  of,  332  ;  of  Venice,  Ge- 
noa, Amsterdam,  Hamburg,  333  ;  of 
England,  334  ;  Scotch  system,  335  ; 
of  France,  335;  U.  S.  Banks,  338; 
State  Banks,  337  ;  safety  fund  and 
Suffolk  Bank  systems,  338  ;  free 
Banking,  338  ;  National,  339  ;  liabil- 
ities of,  341;  resources  of,  342; 
profits  of,  343. 

Barter,  difficulties  of,  283. 

Bounties,  375. 

Brussey  on  wages,  161. 


C. 

CAPITAL,  defined,  73  ;  origin  of,  74  ; 
forms,  76  ;  consumption  of,  79,  120  ; 
productive  and  unproductive,  81  ; 
fixed  and  circulating,  83  ;  relation 
to  labor,  88  ;  general  distribution 
of,  92  ;  ratio  of  to  labor,  93  ;  re- 
muneration of,  197  ;  may  not  claim 
all  profits,  243. 

Clearing  House,  noticed,  317. 

Coinage,  purposes  of,  301. 

Combinations  of  employers,  110,  179. 

Commercial  crises,  causes  of,  391  ;  the 
turning  point,  a  panic,  392  ;  exam- 
ples, the  Gold  Bank  of  S.  Francisco, 

392  ;    the   English   Tea  speculation, 

393  :   Tobacco  raising  on  the  Con- 
necticut  River,   394  ;    the   crisis   of 
1837,  395;  the  practical  problem,  397; 
disturbance  of  the  world's  finances 
in  1878,  398. 


Competition,  affects  wages,  172;  com- 
binations to  resist,  175. 

Co-operation  of  labor  and  capital,  the 
principle,  88;  happiest  in  one  person, 
89  ;  conditions  which  favor,  92  ;  re- 
ward for  each,  96  ;  freedom  to  both, 
102;  promoted  by  moral  and  intel- 
lectual culture,  107. 

Co-operative  associations,  110,  345. 

Consumption,  its  nature,  15,  112;  forms 
of,  114  ;  objects,  116  ;  for  reproduc- 
tion, 117 ;  for  gratification,  125; 
public,  136  ;  purposes  of  public,  139. 

Credit  an  instrument  of  exchange,  309  ; 
its  nature,  309  ;  forms.  310  ;  func- 
tions. 311  ;  abuses  of,  321 ;  mischiefs 
of  abuses,  325. 

Currency  defined,  344  ;  four  kinds,  344; 
evils  of  credit  currency,  349. 


DESIRES,  conflicting,  7. 

Distribution,  what  it  implies,  16  ;  scop* 

of,  151;  parties  to,  152  ;  sub-division, 

153;  of  profits,  239. 
Dividends,  defined,  234  ;  include  interest 

and  profits,  237. 
Division    of   labor,  the  principle,  48  ; 

special  advantages,  51  ;  limitations, 

58;    incidental  evils,  64;    interna- 

tional, 66. 
Duties,  specific  and  ad  valorem,  253. 


1C. 

ECONOMY,  rules  of,  128  ;  in  the  house- 
hold, 131. 

Education,  expenditures  for,  144. 

England,  bank  of,  334. 

Exchange,  its  scope,  16  :  nature  of,  2fi3; 
fundamental  principles,  267,  necessi- 
ty of,  270;  international.  272:  agents, 
275  ;  money  its  instrument,  282; 
credit  its  instrument,  309. 


FEES,  to  whom  applied,  155. 

Foster,  L.  S..  on  taxing  mortgages,  261. 

France,  bank  of,  335. 


402 


INDEX. 


Free-trade,  defined,  354;  presumption 
in  favor  of,  355;  between  American 
States,  379. 

GK 

GENOA,  bank  of,  333. 

Government,    expenditures     for,     139; 

revenues,    248;   agency    respecting 

money,  299. 

H. 

HAMBURG,  oank  of,  333 
Home-market,  how  formed.  368 


INCOME  tax,  256. 

Improvements  public,  expenditures 
for,  142. 

Interest,  defined,  215  ;  rate  how  deter- 
mined, 218 ;  why  high  in  a  new 
country,  225  ;  not  an  index  of  pros- 
perity, 229. 

J. 

JEFFREY.  Lord,  description  of  steam 
engine,  47. 


LABOR,  defined,  19 ;  measures  value,  19; 
kinds,  20  ;  physical  moves  things, 
20;  mental,  what  it  does  directly, 
21;  what  indirectly,  24  ;  productive 
and  unproductive,  25 :  changes 
effected  by,  26 ;  means  of  increasing 
its  effectiveness,  32  ;  consumption 
of,  120  ;  remuneration  of,  154  ;  nom- 
inal and  real  cost  of,  150  ;  efficiency 
affected  by  various  causes,  162. 

HVL 

MERCANTILE  system,  error  of,  9. 

Mill,  J.  S..  his  fundamental  principles 
of  exchange.  267. 

Money,  an  instrument  of  exchange,  282  : 
definition  and  functions,  284  •  a 
standard  of  value,  285  ;  a  medium 
of  exchange.  286  ;  essential  quali- 
ties, 287,  290 ;  articles  used,  289; 
adapteduess  of  gold  and  silver,  293  ; 
general  truths  concerning,  296  ; 
agency  of  government  respecting. 
299  ;  coinage,  301  ;  double  standard, 
305. 

Monopolies,  limit  supply,  14. 

Moral  and  intellectual  pleasures,  eco- 
nomical 133 


NATCHAL  agents,  defined,  32  ;  for  creat- 
ing momentum.  35;  for  applying 
momentum,  43. 


PANICS,  nature  of  illustrated  by  exam 

pies,  392. 
Political    Economy,   the  name,  3  ;  de- 

fined,    4  ;    fundamental     laws,   4; 

materials  of  the  science,  6  :  regards 

self  interest,   6  ;  its  practical  end, 

15  ;  divisions,  15. 

Poverty,  expenditures  to  relieve,  148. 
Production,  defined,  15;  involves  labor 

applied  to  nature's  gifts,  17. 
Profits,  meaning  of,  239  ;  how  to  be  dis- 

tributed, 242  ;  part  due  to  laborers, 

246. 
Property,  right  of  established   by  la- 

bor, 5  ;  division  of  necessary,  97  ;  to 

be  secured  by  law,  99. 
Protection,  defined,  354  ;  arguments  for, 

358  ;    lays  an  unequal   tax,  361  ;  a 

restrictive  policy,  366  ;  positive  ob- 

jections to,  372. 


RAILWAY  corporations,  creatures  and 
agents  of  the  State,  382  ;  practical 
monopolies,  384;  relations  to  general 
industry,  3o5  ;  administration  of, 
386  ;  abuses  from  managers,  387; 
money  power  of,  390. 

Rent,  defined,  199  ;  kinds  of,  200  ;  Ricar- 
do's  theory,  201  ;  for  agricultural 
lands,  202  ;  in  cities,  210  ;  why  less 
than  interest,  212. 

Ricardo's  theory  of  rent,  201. 

Restrictions  on  industry,  mischievous, 
105. 

S. 

SALARIES,  how  applied,  154  ;  principles 

governing,  185. 

Science,  expenditures  for.  143. 
Scotch  banking  system.  335. 
Speculation,  defined,  the  cause  of  com- 

mercial crises,  391. 
Strikes,  175. 
Sumptuary  laws,  106. 
Supply  and   demand,  law  of,  14  ;    ad- 

justed by  freedom,  227. 


TARIFFS,  253. 

Taxation,  relation  to  public  expendi- 
ture, 136,  248;  Adam  Smith's  max- 
ims, 249  ;  direct  and  indirect,  250  ; 
American, 254  :  National,  25.°i:  State, 
257;  double  on  mortgages.  25'J. 

Trades-unions,  176. 

Transmutation,  transformation,  trans 
portation,  effected  by  labor,  26. 

TJ. 

USURY  laws,  mischief  of,  230. 
United  States  Banks,  336. 


INDEX. 


403 


VALUR.  defined.  11,  264  ;  distinct  from 

?rice  and  utility,  12,  283  ;  limit!*  of, 
8;  determined  by  cost,  260. 
Venice,  bunk  of,  S32. 


WAGES,  defined,  154  ;  nominal  and  real, 
156  ;  rate  of,  how  determined,  IWi ; 
necessary,  167;  customary,  171;  af- 


fected by  competition,  172  ;  general 

law,  181  ;  special  cause*  anVctiiiL', 

184. 

Wasjti-fund  theory,  109- 
Walker,  Aina*u,  on  nominal  and   real 

waijec,  157. 
Walker,  F.  A.,  ou  industrial  efflcionr.y. 

m. 

War,  expenditures  for,  119. 

Wealth,  detlnud,  rt  ;  error*  respecting,  8; 

sources  of,  10  ;  how  increased,  11. 
Women's  labor,  remuneration  of,  190. 


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